Auto Loans With Bad Credit

What does debt to income ratio mean? Debt to income ratios are what lenders use to determine how much of your gross monthly income is already going out every month to cover your existing bills as a percentage. Every lender has their own guidelines as to what percentage they will allow you to have and still be able to approve you. The ratio is calculated by taking your total monthly out go every month and dividing it by your gross monthly income. Here is a general example. If your monthly bills total $2500.00 and your gross monthly income is $5000.00, then your debt to income ratio would be 50%. Most lenders want that number to be around 30% as a general rule.
 
What determines the interest rate I get? In general three things determine the rate that you will qualify for. 1) The year of the vehicle you are looking at. Usually the older the vehicle the higher the interest rate. 2) The term of the loan. Usually the longer the term you go the higher the interest rate will be. 3) Your credit score. Most lenders price their base rates in tiers. Usually it will be A,B,C,D or 1,2,3,4. Each of these tiers will have a minimum credit score requirement to meet. Their top tier will have a cheaper rate than their bottom tier. So your credit score will determine which tier you fall into. From there they may make adjustments for the term and year of the vehicle.
 
Why are the interest rates higher on subprime loans? Subprime loans are much riskier than a regular prime loan. The lower the credit scores the more propensities there are for default. Just because your credit score is low doesn’t mean you will not pay, but the lender has to generate enough income from these loans to cover the losses on the ones that do go bad. As an example if a lender approves 100 loans with a 500 credit score, more of those loans will default than if they approved 100 loans with a 750 credit score. Therefore they will charge a higher rate on the 500 score loans to offset any losses they incur and still remain profitable. Conversely they do not have to charge as high of a rate on the 750 credit score loans because there will be less losses to offset.
 
How do I calculate my gross monthly income? There are a couple ways to do this. 1) Take the gross year to date income off of your most recent paystub and divide it by the amount of months you have worked there for the year. 2) Take your hourly rate times the amount of hours you work per week. Take that number times 52 for the amount of weeks in a year and divide that number by 12 for the amount of months in a year. Both of these methods should get you roughly the same number