Car shoppers with bad credit that get paid in cash can have a difficult time getting approved for a car loan. This is because subprime lenders (those that work with applicants with imperfect credit) require proof of W-2 income. The problem, in a lot of these paid in cash "under the table" situations, is that a buyer either doesn't get a W-2 or it doesn't accurately reflect their earnings.
Recently, we received this question from a consumer:
"I get paid in cash. Will you take my checking account deposit for proof of income?"
This person went on to mention that they have a poor credit score, which therefore means the answer to their question is "no." Car buyers with credit problems will find getting approved for a car loan is difficult if they receive all (or even part) of their income in cash. Allow us to explain why.
The Problem with Being Paid in Cash
In many cases, being paid in cash means all or part of your income is "under the table" or "off the books." This is also true for people who receive non-payroll checks, where nothing (income taxes, social security, Medicare, etc.) is withheld from their pay.
Basically, it means you either don't receive a W-2 statement, or if you do, it doesn't accurately reflect the amount of money you make. This is where you can run into trouble if you have bad credit and need an auto loan.
Bad Credit Auto Loans and Proof of Income
Where most traditional lenders do not, subprime lenders require proof of income. They need to verify what you make because bad credit car loans are considered riskier. So, the income verification is their way of taking a precaution.
The only thing that subprime lenders will accept for proof of income is a W-2. Most will be satisfied with a computer-generated pay stub from the past 30 days that lists your year-to-date earnings on it. In some cases, a bad credit lender may accept multiple years of professionally prepared tax returns as verification. Either way, bank deposit records do not count.
Subprime lenders are more stringent with their income qualifications for several reasons. The main one being: they're trying to determine a practical car buying budget for you. This is why they set a minimum monthly income requirement, which typically ranges from $1,500 to $1,800. And it's also why they calculate your debt to income (DTI) ratio.
Even if you meet the minimum monthly income level, it's all for naught if you can't prove it with the acceptable documentation. Additionally, if you have the proof but don't report all of your earnings, your DTI ratio could appear way off and cause your application to be rejected.
So, not only do you need to be able to show proof of W-2 income, the amount stated on it must meet both the lender's minimum monthly requirement and result in an acceptable DTI ratio. For most subprime lenders, your DTI cannot exceed 50% of your income.
The Bottom Line
If you're paid in cash "under the table," hopefully you now understand why this may prevent you from getting approved for a bad credit auto loan. That is, unless you receive a W-2 and report all of your earnings accurately.
Or, it could be the case that you meet the requirements of a subprime lender, but you aren't working with the right dealership. At Auto Credit Express, we help people with poor credit find financing with our nationwide network of special finance car dealerships.
Fill out our simple and secure car loan request, and we'll connect you with a local dealer that can work with unique credit situations. Our service is free and we work fast, so what are you waiting for? Get started today.