Table of Contents
- How do car loans work?
- What makes it hard to get a car loan as a low-income earner?
- How to get a low-income car loan
- How to save on car insurance with Jerry
Load full table of contents
car loanis especially difficult if you are a low-income earner, but you might be able to find a willing lender that will give you a reasonable interest rate if you raise your credit score, make a large down payment, or find someone to co-sign your car loan.
Car loans allow you to spread your payments out over time, which is why most people take one out when they buy a car. If you’re a low-income earner or you have bad credit, it will be much more difficult for you to find a favorable loan.
The good news is that, if you’re patient and willing to put in the work, you will be able to find a car loan. If you’re looking for a breakdown on car loans for low-income earners, read on with this guide brought to you by the
car insurancecomparison app
Jerry. We'll even show you how to save on insurance with our
trusted quote comparison tool.
Compare auto insurance policies
No spam or unwanted phone calls · No long forms · No fees, ever
How do car loans work?
When you go to buy a used or new car, you might not have the money you need to pay for it all at once. The most common solution is to take out a car loan from a lender. Some popular lenders include banks,
credit unions, and car dealerships.
With a car loan, you can pay the majority of the car’s value off in monthly increments. Since you also
pay interest on a car loan, it will end up costing you more over time than just buying the car outright.
Why low-income owners take out car loans
For people with kids or with jobs that require a long commute, owning a car can be a necessity. Since low-income earners usually can’t pay out of pocket for a car, financing is one of the only ways to guarantee access to one.
Many lenders are also flexible when it comes to
loan terms, or the number of months an individual will make payments for. This flexibility allows low-income earners to more easily fit car payments into their budget.
What makes it hard to get a car loan as a low-income earner?
Lenders assess risk on a case-by-case basis before giving out a car loan, and low-income earners are generally considered riskier to finance. Some reasons low-income earners have trouble finding a loan include:
Even though it may be more difficult for you to find a car loan if any of the above apply to you, that doesn’t mean you should give up hope. Plenty of low-income earners are able to secure and successfully pay off their car loans.
Key Takeaway A limited income or a low credit score will make finding a car loan more difficult, but that doesn’t mean that it’s impossible.
How to get a low-income car loan
The process for getting a car loan might seem intimidating, especially if you are a low-income earner. By following these steps, you’ll have a better chance to secure a decent car loan.
Check your credit
In general, you should be able to qualify for a good loan if your credit score is higher than 660. Anything lower than 660 will make it much more difficult to find a loan, especially one that offers a low-interest rate.
If you have the luxury of waiting until your
credit score improvesbefore taking out a car loan, it could go a long way towards saving you money.
Compare multiple lenders
Beyond having a good credit score, the best way to ensure you get a favorable car loan is to compare a few different lenders. If you compare at least three lenders, you’ll be able to choose the one that offers the
best interest rateof the bunch.
Even though it’s more difficult for a low-income earner to find multiple loans that they qualify for, it’s still worth putting in the work. Don’t let one lender convince you that you’re doomed to a high-interest rate. Always try to compare as many options as you can.
Consider a credit union
If you aren’t having much luck with a bank, you can
consider borrowing from a credit union instead. Credit unions sometimes offer lower interest rates for low-income earners, and they are much easier to qualify with.
In addition, many banks have a minimum loan amount, while credit unions generally don’t. This makes them a popular choice for people that need a loan for a cheap used car.
Consider a co-signer
Finding a co-signeris the best way to get approved for a loan if you have bad credit. A co-signer is a separate individual who agrees to take on the burden on your loans if you are unable to pay them off.
There is a lot of risk in being a co-signer, and it’s not something that you can ask of just anybody. If you have someone willing to co-sign your car loan, it will make finding a loan with a low interest rate much easier.
Save up for the down payment
When you go to take out a car loan, you’ll be asked to make a down payment on the vehicle. Generally, your down payment will be about 10 to 20% of the car’s total value.
If you’re able to save up some extra cash before you take out your loan, you can make a down payment for more of the car’s value. Even if you still end up with a car loan with a high-interest rate, owing less money will mean much more
Once you’ve found a lender you’d like to work with, the next thing to do is get preapproved. Being preapproved means your lender has given you an estimate of how much they will lend you and what your interest rate will be.
Getting preapproved is a powerful negotiating tool. You’ll be able to head to
a dealershipwith a clear idea of how much you can spend, and it will make planning the loan payments into your budget much easier.
How to save on car insurance with Jerry
Finding the right car can be hard, and so can finding a car loan, especially if you’re a low-income owner. Beyond all that, you’ll also need to make sure you fulfill your state’s minimum insurance requirements before you drive off the lot.
If you find a plan that works for your new car, or if you want to switch to a better plan, Jerry’s experienced team can help. Our agents will take care of all the paperwork and phone calls and get you set up in no time.
On average, Jerry users save $887 a year on their car insurance payments.
“When we added a new car to our family, we were shocked at how high our current insurer was going to hike our rates. We usedJerryfor some comparison shopping and are now saving around $1000 a year. Thank you, Jerry!” —Darius P.
Find insurance savings (100% Free)
Let Jerry find your price in only 45 seconds
No spam · No long forms · No fees
Is it harder to get a car loan with a low income?
It is often more difficult for low-income earners to qualify for a car loan. Some lenders have a minimum income that you need to demonstrate to take out a car loan.
In addition, many low-income earners have a credit score of 660 or lower. Since credit score is the single most important factor in determining if you qualify for a car loan, it is very difficult to find a favorable loan with a low credit score.
Is a longer car loan better or worse?
It is usually better to take out a car loan with a shorter loan term. The shorter your loan term, the less interest will accrue throughout your loan.
Of course, your loan term will determine how much you pay each month, so the best loan term for you will vary based on your finances. In general, a loan term of 60 months or shorter is recommended.