$5,000 Auto Loans with Bad Credit

by Mack Bartlett

You’re looking for $5,000 auto loans for people with bad credit, but the fact is lenders aren’t looking to lend a specific amount. They’re looking to lend as much as possible without taking excessive risk. So let’s look at how a lender would decide whether to give you an auto loan for $5,000.

First, let’s estimate the payment. Now, because we know you have a shoddy credit score, your interest rate is going to be between 11% and 20%. For quick math let’s call it 15%.

$5,000 financed at 15% for 36 months gives a payment of about $174 per month. The lender already knows your credit is bad, but they’ve offset their risk by charging you 15% interest (or more). The only question remaining is whether you can handle another $174 in monthly debt service. To make this decision they use a ratio of the sum of all your current debt payments compared to your monthly gross income. What ratio are they going to want to see? It’s hard to say because it varies so much by lender. Some lenders care a huge amount about your income; others don’t care as much because an auto loan is a secured loan – meaning they can repossess the car if you default (repossessing the car can actually be profitable for them because they get the car back, keep all the money you’ve already paid, then turn around and sell the car again).

But I’d say you want to keep your total payment to income ratio below 40%.

For example:

Your gross income is $4,000 per month (you’ll have to prove that with pay stubs and possibly a letter from your employer).

  • Your mortgage payment on your townhouse is $950 per month.
  • You have another car payment at $250 per month.
  • You have student loans at $150 per month.
  • The minimum payments on your credit card debt is $140 per month.

So before we add the $174 per month for your new car loan, you’re at $1,490 per month.

Adding your $174 for the new loan you’re at $1,664, which is 41.6% of your gross income.

This leaves slightly over the 40% ratio we were shooting for. Does that mean you won’t get the loan? Not necessarily. Like I said, some lenders don’t care a ton about your debt to income ratio. On the other hand, you have to ask yourself if YOU want the loan. You’ve already got credit card debt, student loans, and another car payment. Would it make more sense to hold off on this car? Could you ride your bike or a $500 scooter to get where you need to go? I know it’s not glamorous, but trust me when I tell you that getting out of debt is worth feeling a little nerdy on your scooter. Think it over.


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