When you have many bills to pay and are not able to make ends meet with the income that you are currently making, your bills will be put off slowly and you will start taking more money on your credit against the limit set for you. Under such circumstances, it will lead to bad credit and your credit score takes a dip. A credit record comprises of your overall financial management and is essential when you apply for a loan. However, with bad credit, lenders will lose their faith in you based on your past financial management.
Debt to Income (DTI) Ratio
If you are looking for finance and have bad credit, there are a few lenders who will be able to help you. If you are able to meet the requirements of the lenders, they will look beyond the credit rating and get an auto loan approved. However, your debt to income ratio will be taken into consideration. DTI means the part of your monthly income which will be set aside for bills. If your DTI is low, then your chances are also better. The DTI ratio exists to filter the bad creditors who won’t be able to take the monthly bills. Generally, your DTI should be within 40% and this is inclusive of the loan that you are about to get.
DTI Ratio Required for Auto Loan Approval
When you check your current credit score, the first thing you need to do is divide your gross monthly income by the bills that you need to pay per month. This will give you your DTI ratio. If this ratio is beyond 50%, you will have to make some adjustments before applying for a loan. This adjustment can be paying off your previous loans or reducing your monthly bills in order to decrease your DTI ratio. If you are taking finance for buying a car, you will also have to make room for vehicle maintenance costs, insurance, etc.
If the auto loan does not work out for you, you can also try peer to peer loans where you will be able to take out a loan from an individual from any part of the country, online for a low rate of interest. Peer to peer loans are gaining popularity today and is a non-profit organization which comprises of people who are willing to invest their money in others and expect very little in return. The best part about these peer to peer loans is that their interest rate is almost as low as 6%.
Bad credit loans will be difficult to manage if you do not have the financial aid to help you get through with it. This is especially the case if your income is limited and your debt is more. This will have an impact on your expenses and you will find it difficult to pay the interest on the loan that you are going to take, monthly. It is best to avoid getting bad credit, for starters.