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To qualify for bad credit auto financing, both earnings and total monthly bills are taken into account. If a person with poor credit is interested in purchasing a car, he or she should know how a lender will view income and expenses.

The fact is, disposable income plays a large role in the decision-making process and this can cause many loan applications to be rejected.

Disposable income is the amount of money that remains after monthly bills are paid. Lenders first calculate the debt to income ratio (DTI) by adding up regular monthly bills. Included in this calculation are payments for rent or mortgage, loans, credit card bills, average utility expenses, and required expenditures for things like child support and alimony.

This amount is then divided by gross monthly income, which is pay prior to taxes and other deductions. The result is the monthly debt percentage. Bad credit lenders usually cap this figure (including payments for the auto and insurance) at 50 percent of gross monthly income.

In addition, lenders ensure that car and insurance payments total less than 15 percent of gross monthly income. This figure is referred to as payment-to-income, or PTI.

For example, if the gross monthly income is $3,500, the total of auto and car insurance payments cannot be over $525. Lenders typically assume that the car insurance payment will be $100, which leaves a maximum budget of $425 for the car payment.

Consumers should also allow for expenses like vehicle maintenance and fuel.

If an extended warranty is not provided with the vehicle, the buyer should set money aside for necessary repairs. An extended warranty is usually recommended for a newer model vehicle. Consumers should take this expense into account and calculate their PTI and DTI to determine if they will qualify for most bad credit auto financing.