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Car Loan Eligibility: A Real Life Example



Having a down payment, a qualifying income, and enough room in your budget are all important aspects of being eligible for an auto loan. We use a consumer’s question and information to look at his situation and see if they may qualify for a bad credit car loan.

Consumer Q&A

Here at Auto Credit Express, we work to match borrowers to dealerships with the lending options they need for their credit situation. Every month, we get a lot of questions from consumers which we’re happy to answer.

Auto Loan Eligibility: A Real Life ExampleOne consumer, we’ll call him John, is wondering if it’s possible to get approved for an auto loan. John wrote:

“Looking to get a $24-25k loan. Monthly gross income is $4-6K. I have zero credit and am putting down $10-12k on a 2020 vehicle.”

First, we’re not a lender, so we wouldn’t be able to tell John whether or not he could be financed. However, from this statement, we can see that their down payment amount is quite large, and is likely to meet the requirement of most subprime lenders. Their monthly income is also above the typical minimum amount required for a subprime car loan, although we don’t know the type of income he earns.

John also said that he has “zero credit,” which likely means he’s a new borrower. Someone with no credit likely has no credit score or one that’s toward the lower end of the FICO credit scoring range, which runs from 300 to 850.

Here’s a big issue that sticks out to us: as stated, the consumer wants an auto loan around $25,000 – with a $12,000 down payment, that’s a $13,000 loan. However, if he meant that he was looking for a $37,000 vehicle (financing for $25,000), that’s an entirely different story.

Since we don’t have all the information, we’re going to assume that John is looking to finance a car with a selling price of $25,000, financing $13,000, and putting down $12,000. Now that we have the price of the vehicle is established, let’s break this question down and see how it fits into a subprime auto loan and the general requirements for special financing.

Requirements of Subprime Auto Loans

Subprime simply means bad credit, and people who have never borrowed before often have to start here since they have lower or nonexistent credit scores. For many consumers, getting into a subprime car loan can be a way to jump-start their credit history and get into the vehicle they need.

A subprime lender usually requires a borrower to have a minimum monthly income of around $1,500 to $2,500 before taxes. John appears to have enough income to meet the minimum income requirements of most subprime lenders. If he makes between $4,000 to $6,000 a month and that income can be proven with computer-generated check stubs, it’s likely that he’s on his way to being approved for subprime auto financing.

Subprime lenders also typically require a down payment amount of at least $1,000, or 10% of the selling price, and John meets this as well. If he’s looking to put down $12,000 on a $25,000 car, that’s a nearly 50% down payment. Large down payments are a great way for bad credit borrowers to lower their interest charges, since people with lower credit scores are more likely to qualify for higher interest rates.

Besides meeting the income and down payment requirements, John also needs to have a valid driver’s license and a working cell phone or landline phone in order to qualify for financing. There’s another requirement that we’re not sure if John meets quite yet, though.

Debt to Income Ratio and Auto Loans

We’re not sure John meets the debt to income (DTI) ratio requirement. Subprime lenders use the DTI ratio calculation to see how much available income you have each month after bills that can be used to pay for the vehicle.

You and John can calculate your own DTI ratio right at home. Simply add up your estimated auto loan and insurance payment plus all of your regular monthly expenses (excluding utilities), and divide the sum by your monthly pre-tax income.

John stated that his monthly income was between $4,000 and $6,000, so we’ll just say $5,000 for simplicity’s sake. Let’s say that he pays somewhere around $2,000 each month in other loan payments, credit card payments, and household bills. Car lenders estimate that borrowers pay $100 each month for full coverage insurance, and based on the price of the vehicle that John is looking to buy, his payment is likely to be around $350 if he goes for a 48-month term with a 12% interest rate (the average for bad credit consumers).

That’s $2,450 for all monthly expenses, and his income is $5,000 a month. Let’s look at his DTI ratio:

  • $2,450 divided by $5,000 = 0.49, or 49%

A subprime lender’s maximum DTI threshold is generally around 45% to 50%. Auto lenders use this calculation to see how much of your income is available since they don’t want to approve anyone that’s already overextended, or is going to be overextended with car expenses.

Based on the estimates, John may or may not qualify for subprime financing. We don’t know what his actual expenses are, but if they’re less, then he could be meeting the DTI ratio requirement needed to get approved for special financing.

We can’t say for certain that John is eligible for a subprime auto loan without knowing all of the specifics, but it looks like it may be worth his time to look for a special financing dealer to get the process started.

The Next Step in Getting a Car Loan

One of the biggest hurdles that new borrowers and bad credit borrowers have to overcome is finding the right lender for their situation. John reached out to us at Auto Credit Express, and we’re glad that he did! Not only can we offer car loan advice, we match consumers to dealerships with special finance departments.

Dealers that are signed up to work with subprime lenders are sometimes harder to locate than traditional lenders, but we want to make it easier to get in touch with them. To get started, fill out our free auto loan request form, and we’ll look for a dealership in your area.

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Bad Credit

Are Buy Now, Pay Later Apps Better Than a Credit Card?



You might think BNPL saves you money and time, but it can cost you big if you’re not careful.

If you’ve noticed a lot more “buy now, pay later” apps popping up when you check out with online retailers, it’s because they’ve become increasingly popular.

This comes as no surprise when you consider how younger generations are hesitant to use credit cards. According to a new study on buy now, pay later (BNPL) apps done by The Ascent, 67% of millennials don’t have a credit card. For some, that’s because they can’t get approved, and others prefer to avoid credit. Many don’t think it makes sense to use a credit card for small, everyday purchases and are worried about the impact of credit cards on their credit scores.

Which one is better: BNPL apps or credit cards? The answer, as you might expect, is: It depends.

Better for ease of approval: Buy now, pay later

One of the main draws of BNPL apps is that they typically don’t require credit approval, and most don’t even involve a hard pull on your credit report.

This is good news for folks with bad credit or no credit at all, and it’s helpful for anyone who wants to keep credit inquiries to a minimum. Having multiple new inquiries on your credit report in a short period of time — and credit card applications are considered an inquiry — can cause your credit score to drop.

Shopping with an online retailer and paying with a BNPL app at checkout is certainly convenient. It means you don’t have to fill out a lengthy application and wait to see if you’re approved. However, just because it’s easy doesn’t mean it’s a wise choice.

Better for improving your credit score: Credit cards

Using a credit card regularly and paying it off in full and on time each month is one of the best ways to build credit. Of course, credit cards don’t inherently improve your credit — responsible credit card usage does. Late payments and delinquent accounts can completely wreck your credit score. And, as discussed above, the credit card application itself can ding your score slightly.

Many BNPL apps, on the other hand, don’t report on-time payments to the credit bureaus. This means you won’t get credit for them — pun intended. On the other hand, any failure to make your payments can be reported to the credit bureaus and damage your score.

Credit cards have the potential to either help or hurt your credit depending on how you use them. In contrast, a lot of BNPL apps only have the potential to drag down your score if you fail to pay off your balance.

Better for avoiding interest: It depends

Every BNPL option has its own set of terms and conditions, so it’s important to read the fine print before making a decision. Some come with an interest-free period, while others charge interest rates of up to 30%. You typically won’t be charged any fees to use a BNPL service if you take advantage of an interest-free promotion and pay off your full balance within the interest-free period and on time. That said, most of these services do charge late fees and returned payment fees if you don’t have sufficient funds in your bank account to make one of your scheduled payments.

The decision between a BNPL app and a credit card comes down to interest, so you should know the interest rate on your credit card. You can find that information on your monthly statement. If the BNPL app you’re considering charges interest, compare the rate to what your credit card would charge. In either case, you’ll likely pay a premium to put the purchase on credit, as the interest rates on credit cards and BNPL apps are extremely high.

Often, BNPL apps will offer an interest-free period, which is what can make them so enticing. A typical interest-free offer will break up the total cost of your purchase into four installments, asking you to pay 25% of the purchase price up-front and then make the remaining three payments every two weeks.

If you do this, you’ll have six weeks to pay off the purchase and won’t have to pay any interest. This makes it a slightly better deal than a credit card, which typically has a grace period of 21 days, or three weeks, before interest is assessed on a purchase.

However, if you miss a single payment or fail to pay off the full purchase by the end of the interest-free period, even if you only have a few dollars left to pay off, you could be in for a rude awakening. BNPL interest rates are typically far higher than those charged by credit cards. Some even charge what’s called “deferred interest,” meaning interest accumulates on the original purchase price, not the remaining balance. What’s more, some of these services charge late fees as a percentage of the original purchase value, which can be very costly.

In other words, BNPL services can save you money on interest, but they can also cost you a lot more if you’re not careful. They also give you a very short period of time to pay off your purchase interest-free, especially when compared to 0% intro APR credit cards with 18-month introductory periods.

Better for big purchases: Credit cards

Most BNPL apps are meant for smaller items — think a few hundred dollars — rather than major purchases. If you’re looking to finance something in the thousands of dollars range, you might have trouble finding a BNPL app that will help you out. Credit cards tend to come with higher credit limits, especially if you have good credit and a decent income.

That being said, financing an expensive purchase on a credit card is typically not a good idea either, due to the high interest rates. The only time you should consider putting a big-ticket item on credit is when you can take advantage of a good 0% intro APR credit card. Even then you need to be certain you can pay off the balance before the introductory period ends. Otherwise, you’ll end up getting slammed with massive interest fees.

Saving enough money to pay up-front is almost always the best way to pay

In most cases, the best way to pay for a purchase is to save up the money first and buy it outright. This ensures you’ll avoid interest fees, debt, and potential credit damage.

This isn’t always possible, but it is a best practice you should exercise for any non-essential purchases. Instead of swiping your credit card or using a BNPL app, open a free savings account specifically for that goal and transfer money into it once each week. Wait until you have enough money saved to buy the item you’ve had your eye on.

It won’t get you instant gratification, but it also won’t cause you to stress about making your payments or land you in debt. And that is priceless.

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It’s never too early to monitor your kid’s identity



As children return to school, security experts want parents to add one more thing to their yearly checklist – safeguarding their child’s identity.

Monday is Child Identity Theft Awareness Day.

“This is a huge problem that frankly no one is aware of if they’re not paying attention to it, because it feels like an adult crime and it couldn’t possibly happen to a child, but it does,” said Eva Velasquez, President and CEO of Identity Theft Resource Center.

Recent studies show over 1 million children are impacted each year, with losses over $2.6 billion.

This year, new government programs for COVID-19 relief have created new vulnerabilities.

Children are prime targets because thieves can use their credentials to build credit history over time, then take out loans, open credit cards and max them out.

It can take months or even years for parents to realize their kids now have bad credit.

“The detection methods adults use just by engaging in the outside world, those aren’t there for children and the thieves realize that and they know it can go undetected for long periods of time,” said Velasquez.

The center says it’s never too early to start monitoring your child’s identity.

Teach them cyber safety as they get older and watch for red flags.

If you get something in the mail for your kid that looks like it should be for adult, don’t write it off as a mistake.

The biggest recommendation is to freeze your child’s credit. It won’t solve everything, but it will significantly lower risks.

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4 Signs of a Online Loan Scam



Over the years, complaints about online loan scams are fortunately decreasing, thanks to warnings about loan scams and more reputable online lenders surfacing nowadays. However, even though the number of people getting scammed is steadily decreasing, the amount of money these scams are getting is still massive.

A report made by the Federal Trade Commission stated that consumers had lost about $905 million back in 2017, which is significantly higher than 2016’s $63 million. The FTC has made general guidelines about online scams through credited education, awareness programs, and even enforcement. However, even with all that, consumers are still losing millions through these fraudulent activities.

Typically, financial scammers primarily prey on people who have been previously denied a loan and desperately need money. For people like them, the need to borrow money is stronger than the urge to be vigilant about the loan they are applying for, making them easy prey for online loan scams. Even then, we need to be vigilant. That said, here are some signs you should watch out for to see if you are applying for an online loan scam.

No Credit Check

Now, don’t get us wrong. Not all lenders who don’t look at your credit history are scammers. Some alternative lenders are more interested in your income or profits (if you are running a business) rather than your credit history or merely running online loans for people with bad credit.

However, that doesn’t mean that you don’t have to be vigilant when encountering a lender that doesn’t require a credit check. If you base your decision on whether it’s a scam or not, merely seeing if they do a credit check is wrong.

It is essential to take note that most reputable lenders do a credit check. This is important to them because it helps them determine if you are a risky borrower or not. On the other hand, fraudulent loans aren’t even interested if you can pay the loan. They relish the fact that the borrower can’t repay the debt to incur more fees and penalties upon the borrower.

Upfront Fees

Some lenders will make you pay money in advance before doing any service. This is a red flag. The lender will disguise these as application fees or introduction fees.

Some even disguise these fees as document fees for them to process your application. It’s like them saying you need to send them money first before sending you money for the loan, which is 100% a scam if you ask us.

It is important to remember that any penalties, application fees, and whatnot will be rolled into repayment, or the principal cost when you get approved for the loan.

Unregistered Lender in Your State

All personal loan companies or any financial companies must be registered to the state they operate in. Their registration must pass through the State Attorney General’s Office, which will help the state monitor its businesses. This is applicable even if they operate online.

Online loan scams will typically say they are out of the state’s reach because they are online or a foreign company, which is what a scammer would say. If they operate outside of the state laws, they might be lending money illegally, or it’s an outright scam. When you find one, you can report them to the authorities to prevent these lenders from scamming other people.

If you aren’t sure whether they are legal, you can always check the State Attorney General’s Office if there are some complaints made about them. This might take time, but remember, we are talking about your money here. What is a week of waiting compared to you losing money over a scam?

They Demand a Credit Card

Under no circumstances will a lender or any other legitimate financial institutions demand your credit card or a photocopy of your credit card. If a lender asks for your credit card, it is a scam. They will typically say it is for insurance or some other excuse.

Legitimate financial companies will ask for a payment for the credit report, appraisal, or application, but those charges will be forwarded to your loan, not to your credit card. This is a popular way for scammers to get your money since credit from your credit card is virtually untraceable by the authorities. You also can’t report it to them because you voluntarily gave it to the scammers.

Remember to never give away your credit card or your credit card information to anybody, no matter how legitimate they sound or for any purposes. Doing so will rack you up tons of debt that you may never pay for for the rest of your life.


Online loan scams are still prevalent, even though the cases are steadily decreasing over time. Always be vigilant, especially if your money is at stake. Never give these scammers a chance to get any of your info, no matter how insignificant it is, especially your credit card information. Keep safe.

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