Gray areas in income and employment for auto loans
As with any financial situation, an auto loan is specially designed for you. This means that sometimes you need to be prepared for a situation that not everyone can experience. Our mission is to prepare you for your next car loan opportunity, which means shedding light on the gray areas that lie outside of the most common lending scenarios.
Auto loans aren’t black and white
Every automotive situation is its own. Even if you have the same rates and terms as someone else, you are likely to have a unique car loan experience. That said, there are a few general rules of thumb that most subprime auto lenders follow.
These guidelines are intended to make sure that you can comfortably and successfully navigate a car loan without leaving yourself dry in other areas of your finances. Typical requirements include proof that you have the ability, stability, and willingness to complete your loan.
The main requirements are those relating to income and employment – few lenders are willing to give a loan to someone who cannot prove that they are able to make regular payments.
The basic guidelines for a subprime auto loan are often mentioned, but the more complicated situations that sometimes arise are not often printed.
While there are no hard and fast rules for what a lender does and does not require when it comes to a car loan, we want to shed some light on a few situations that can arise. Auto financing has some gray areas and we want to shed some light on them for you.
Highlight income requirements
When it comes to general income requirements for subprime auto loans, we commonly say that lenders require at least $ 1,500 to $ 2,500 per month before tax (gross income). Your lender may charge more or less, but many of the lenders who are registered with our dealer network follow these general guidelines.
Many lenders require that this income meet a minimum threshold from a single source of taxable and earned income. There are, however, extenuating circumstances in which lenders may consider multiple jobs. It usually depends on the exact nature of your job (s), the length of your employment, and your specific situation.
In order to prove your income, you usually need to bring your most recent pay stub. Nowadays, lenders more frequently ask you to provide at least the last 30 days of computer generated check stubs. Of course, the exact proof you need depends on your job or income source and the requirements of your lender.
Usually, if you are a W2 employee, you have a pay stub that goes with every paycheck. If you’re not used to keeping pay stubs, it’s a good habit to get into. Proof of income is an essential basis for obtaining any type of loan or credit. If you don’t receive physical printed checks, you can usually go online to your employer’s payment system these days to view and print your check stubs, or contact your employer to get them.
If you aren’t receiving a typical income, or if you don’t have proof of typical earned income, you might not be out of the game for the car loan you need. There are several gray areas of income and employment situations that a lender may still be willing to work with.
Uncommon income and employment situations
We cannot list all the instances where a lender makes or accepts a specific type of proof of income and employment. Just as every situation is unique, so are lender requirements – so they can vary.
The best practice is to ask your lender directly if you have a question or concern about your proof of income or employment. If they don’t know your specific situation, they can’t help you work on it. You also don’t want to pre-charge a transaction, only to find that they can’t approve you for a car loan in a specific situation.
You may want to talk to your dealership up front so they can let you know if they have a lender who can offer you approval. Here are some examples of unusual situations that a lender may consider:
Multiple employers: If you’ve always held multiple jobs, there may be a gray area, and whether or not a lender agrees to have this in place depends on a few factors. Some lenders only consider your job to be the highest income. Others might consider multiple sources of income depending on the length of your employment.
Additional income: Most lenders will accept additional sources of income in addition to the qualifying income as long as they are consistent and you have received them for at least six months to a year. Additional income is used to reduce your debt-to-income ratio, which shows the lender how much income you have over the bills you pay.
Unearned income: If you have unearned income, it can generally be used as an additional source of income in addition to earned income. However, not all lenders accept unearned income, and most do not accept it as a primary source. However, if your income is from Social Security, long-term disability, or alimony, some lenders may take this into account. You must prove that you are earning enough to cover your loan payments, usually with a letter of award, and that your income must last for the life of the loan.
Self-employed / contract worker: If you are filling out a 1099 tax form at the end of the year because you are self-employed or under contract, you usually have to prove your income with about three years of tax returns. In some cases, you may need to provide bank statements to show that your income is constant. However, bank statements alone are not enough to prove that you have taxable income in most cases.
Stability is the name of the game when it comes to risky lenders. The longer you live in the same area and work for the same employers, the more likely a lender is to consider you favorably for a car loan approval. Just because you don’t have a long career path with one employer doesn’t mean you’re out of the game!
Subprime lenders know borrowers have to start somewhere and may be willing to help new borrowers without long credit and employment history. Many auto lenders require you to complete a long list of qualifications to verify that you are able to repay the auto loan.
They don’t do this to make it harder for you, but easier. The more evidence you can provide that you have the ability, stability, and willingness to take out a car loan, the better, as they don’t just rely on your credit rating to determine your eligibility.
With that in mind, don’t go to a dealership empty-handed. If you haven’t been able to identify the dealer on what to bring with you, it’s better to be over-prepared than not enough. In addition to your proof of income and employment, a subprime lender is likely to ask you a number of things. These may include: proof of residence, proof of a landline or contracted cell phone, a list of personal references, and a valid driver’s license, among other items.
Let ACE be your guide
Getting the auto loan you need with bad credit can be a big step for many people, but you don’t have to go it alone when working with it. Auto Express Credit! For more than 20 years, we’ve connected consumers with credit problems with local dealerships who can provide auto loan solutions. Let us put you in touch with the auto finance opportunity you’ve been waiting for.
Don’t walk or drive around town looking for a dealer who can help you, start here instead! You can fill out our quick and free form auto loan application form and start your car buying journey from the comfort of your own home, or wherever you are. There is no obligation to buy, so do not hesitate, get started now!