Getting approved for a car loan becomes more difficult if you have bad credit, do not have a job, and your only income comes from benefits such as Social Security or disability. This past month, a consumer asked us about this particular matter:
"I want to apply but have no job, am disabled and on disability, so how can I apply with a fixed income of social security check."
If this person has good or great credit, qualifying shouldn't be a problem if they meet a lender's requirements. However, if their credit is in bad shape, getting approved is going to be much tougher, and we can explain why.
Here at Auto Credit Express, we help people with credit issues locate auto financing, so we are going to assume that this person doesn’t have good credit. Keep this in mind as we break down how your ability to get approved for a car loan is affected by not having a job and only living on a fixed income.
Fixed Income and Bad Credit Car Loans
Subprime lenders—those who work with consumers with poor credit—are willing to review applicants who have a fixed income, but you still need to be able to fulfill all of the requirements.
To start, this means meeting the minimum monthly income requirement. Most subprime lenders typically require that you earn between $1,500-$2,000 a month (before taxes are taken out). You can use fixed sources of income, such as Social Security, to meet this requirement.
You will also have to meet other income-related requirements, which include varying debt to income (DTI) ratio and payment to income (PTI) ratio standards. Again, lenders will consider fixed sources of income when calculating these ratios.
While a fixed income will help meet these requirements, it becomes a problem thanks to another subprime lender limitation. They need at least a portion of your income to be garnishable, and Social Security benefits, and other tax-free fixed income sources, cannot be garnished.
In the event you fall behind or stop making payments on a loan (a situation that is more likely to happen with a bad credit loan), a lender must be able to garnish a portion of your income in order to cover their losses. Therefore, it's a problem when somebody with bad credit doesn’t have any garnishable income.
When Social Security is Your Only Income Source
So, is it possible for someone with bad credit whose only source of income isn't garnishable (like the person who asked the question) to be approved for a car loan? The answer is almost always going to be no. Unless…
- You earn some kind of additional W2 or 1099 income that can be garnished. You don't have to meet the income requirements with just this source. It can be combined with your fixed income to meet the lender's requirements.
- You have a cosigner with a garnishable source of income. If you have a cosigner with garnishable income, they must meet the lender's income, DTI, and PTI ratio requirements on their own, as well.
If either of those are not an option, you could try a buy here pay here (BHPH) dealer. These dealerships finance in-house, so they typically do not care if your income comes solely from disability, Social Security, or other benefits.
If you do use a BHPH, try to make sure that you pick one that reports your loan and positive payments to the credit bureaus. This way, your car loan can help improve your credit and put you in a much better position the next time you need to finance a vehicle.
The Bottom Line
If you have bad credit and all of your income comes from non-garnishable benefits like Social Security, it can be very difficult to get approved for a car loan without the help of a cosigner. So, the car buyer who asked the question would greatly improve their chances of success if they lined one up before applying.
Speaking of improving your chances of getting approved for a bad credit car loan, Auto Credit Express wants to help you do just that. Our fast and free service connects consumers to dealerships that specialize in helping people in poor credit situations.
Don't let your credit stop you from getting financed. Take the first step by filling out our car loan request form today.
