Financing a vehicle means having the income to pay for the car loan, and not all income is viewed equally by auto lenders. How commission-based income is viewed by a lender, and whether or not it's enough to qualify you for a car loan, may depend on many factors such as your credit score.
Commission-Based Income vs. W-2 Income
Since commission-based income is likely to vary from check to check, it can be difficult to use as your primary income source when you're applying for an auto loan. Not every lender works with borrowers who earn wages on commission only, and it's often viewed as additional or supplemental income. This can be especially true for a bad credit borrower.
Most auto lenders, particularly subprime ones, require borrowers to have provable W-2 income that meets a certain minimum threshold, often from a single employer. Basically, it's easier to qualify for a car loan if you consistently make the same amount of money. This shows lenders you potentially have the stability and income available to repay the loan you’re applying for.
Proof of Income Requirements
Commission income isn't a guarantee, and the amount you make as a commission-based worker has the potential to fluctuate. For this reason, many lenders don't make loans based on this type of income. Those that do may require more proof of your income than they may require for a borrower who earns a wage.
As a wage-earner, most bad credit lenders require you to prove income with your most recent 30-days of check stubs, showing year-to-date income. Typically, the minimum income requirement for a borrower with less than perfect credit is around $1,500 to $2,500 a month before taxes.
If you're able to get a loan on a commission-based income, you may need at least three to four months of paystubs, and the lender is likely to take the average commission you make as the base for car loan qualification. Many lenders may also require two to three years of tax returns, similar to the income requirements of self-employed persons or contract laborers. You may also need to provide additional supporting documents such as bank statements to show lenders that you consistently earn.
Commission as Additional Income
In many cases, a commission isn't used as your primary source of income for an auto loan, instead, this is seen as additional or bonus income. This can pose a problem if you don't earn a base minimum wage as well as commission.
If you do earn a minimum wage, your base earnings are used to calculate how much income you have available to spend on a car loan and other vehicle expenses. This is called your debt to income (DTI) ratio, and it helps many bad credit lenders make a final decision about extending financing to you.
Lenders want to make loans that borrowers can successfully complete. If your finances are already stretched too thin with existing bills and loans, you may not be able to do this, and so may not qualify for a car loan. Most lenders require you to have 50% to 55% of your income available, and this is where your commission income can help.
To qualify you for an auto loan, most lenders only consider your gross monthly income from one full-time job. But, once you qualify, additional income can be added to your gross income before they calculate your DTI.
For example: If you earn a gross monthly income of around $2,598 and an average of $600 a month in commission, it can make a big difference between qualifying for financing or not. In some cases, if a lender doesn't use your commission income in addition to your base earnings, you might not meet the DTI requirements to qualify for financing.
To figure your DTI, divide your monthly bills (credit card and loan payments), including an estimated auto loan and car insurance payment, by your gross monthly income. Let's imagine your bills total around $1348.11 each month. Here are two examples showing how earning a commission can impact your auto loan qualification:
| Example: | Without Commission | With Commission |
| Monthly Bills: | $1348.11 | $1348.11 |
| Gross Monthly Income: | $2598.00 | $2598.00 |
| Commission Amount: | $0.00 | $600.00 |
| Bills/Income = DTI ratio | 51.89% | 42.15% |
| Qualifies for an auto loan based on DTI? | No | Yes |
As you can see, adding additional income such as a commission to your gross monthly income can help you qualify for an auto loan. Remember, you typically have to meet the minimum monthly income without commission wages factored in, if you're a bad credit borrower, but the specifics vary by lender.
Ready to Use Your Commission Income Toward a Car?
If you're in a challenging credit situation and need a car loan, we want to help. At CarsDirect, we know how tough it can be to find the right auto loan when you're already facing credit score issues. When you also earn income other than W-2 wages, it can add an extra level of pressure that no one wants to deal with when it's already hard enough finding financing with poor credit.
Instead of scouring the area looking for an auto loan on your own, start right here with us. We have been connecting borrowers with special finance dealerships for over 20 years. The process is fast, free, and has no obligation. What are you waiting for? Let us guide you toward a dealer that's signed up with subprime lenders – simply fill out our car loan request form and we'll get right to work.
