The difference between gross income and net income
When applying for a bad credit auto loan, it is important to know the difference between gross income and net income. Reporting one instead of the other can often be the difference between being approved and being denied.
Gross income versus net income
One thing that a lot of people do when they start a job is try to figure out how much they will earn each paycheck or each month. If you have done the same and you are disappointed with the amount that ended up on your paycheck or that was deposited directly into your bank account, the difference between gross income and net income may be lost on you. . This can be a confusing topic, so let’s explain what they mean.
Gross revenue“ refers to what you earn before taxes and other deductions are taken. If you are employed, your gross monthly income is what you get if you take your annual salary and divide it by 12 (the number of months in a year). If you earn an hourly wage, you can calculate your gross monthly income by multiplying your hourly rate of pay by the number of hours you work per week, then multiplying that number by 4.33 (the approximate number of weeks in a month).
Gross income can be easy to forget because we never see it in our pocket. It’s hard to remember that it even exists considering all the deductions that come with it. These include federal income taxes, state income taxes, local income taxes, social security, and medicare, in addition to contributions to health care and pension plans.
“Net revenue is what you bring home after taxes and deductions. This is the amount that you see on your paycheck or that is deposited directly into your bank account on payday.
So, for example, if you earn $ 3,000 gross per month, but $ 400 goes to taxes, $ 200 to Social Security and Medicare, and $ 200 to health and pension contributions, your net income would be $ 2,200 per month.
As you can see, there is usually a big difference between your gross income and your net income. That’s why it’s important to understand what subprime auto lenders are looking for.
Income Requirements of Subprime Auto Lenders
Lenders want you to show your gross income on your auto loan application. So while your net income – the amount that goes into your pocket – is what you know best, it’s what you get paid before taxes and deductions that lenders want to see.
Auto loans for bad credit work a little differently from traditional loans. Subprime lenders are prepared to handle difficult credit situations because they carefully consider many other factors besides your credit. One thing they will pay close attention to is your income.
These lenders set minimum income requirements because they want to make sure you can afford a vehicle. The minimum gross monthly income amount that subprime lenders are generally willing to accept is between $ 1,500 and $ 2,000.
Now that you know the difference between gross and net income, you can see how putting the wrong type on your application could result in rejection when you might otherwise have been approved.
The bottom line
If you are completing an auto loan application, make sure you do not add up your monthly take-home pay and enter that amount. Instead, take a closer look at your paycheck to locate your gross income and use that figure.
At the same time, if your credit makes it difficult to find auto financing, it might be time to leave Auto Express Credit to help. We help car buyers with credit challenges by connecting them with local special finance dealers. These dealerships are associated with subprime lenders and know how to deal with unique situations.
What are you waiting for? Start the process by filling out our secured auto loan application form today.