Millions of Americans have suffered through some rocky months during the coronavirus pandemic – some worse than others. Although things have opened up or are opening up again in many areas, there are still many people that haven't returned to work. What does this mean for those who are still furloughed but need a car?
Income Requirements and Auto Loans
While unemployment checks may help those who have been furloughed or laid off keep food on the table, this income won’t help you if you’re applying for credit. This includes mortgages, auto loans, and most other types of credit. This is because unemployment benefits are a temporary source of income.
In order to qualify for a car loan, lenders require you to prove income that's likely to last the entire term of your loan. This income usually must be from only one source, and typically needs to be around $1,500 to $2,500 a month before taxes.
Though you may be meeting the required amount with your current unemployment benefits, they're likely to run out long before your auto loan is completed.
Temporary Income and Car Loans
While being furloughed and being laid off mean different things, possibly in terms of work-sponsored health insurance and other perks, they mean the same thing to lenders. Whether you’re furloughed, laid off, or simply unemployed, lenders aren’t likely to approve you for a car loan.
When you apply for an auto loan, the loan term is usually a few years, measured in months. It’s common to see car loan terms between 60 and 84 months – longer than unemployment checks are likely to last. Typically, you’re only allowed to collect unemployment benefits for about 26 weeks, or around six months.
The government has expanded some benefits and offered some extra cash for those affected by the COVID-19 pandemic, but this still isn’t enough for lenders to approve you for an auto loan. Your source of income has to last for the duration of the loan, and unemployment checks won’t last for five straight years.
Need a Vehicle While Furloughed
If you’re really in need of a vehicle, it may be worth it to save as much as you can from your unemployment checks, if you’re collecting (without neglecting your bills, of course), and wait to purchase a car once you return to work. The cash you saved can then be used as a down payment on an auto loan.
Additionally, you can work on your credit score and continue to pay all of your current bills and loans. While your employment status doesn’t impact your credit, your payment history is the most important part of a credit score.
If you make a few late payments, or even miss some, these derogatory marks can stay on your credit reports for up to seven years. This can hurt your chances of getting approved for a car loan or prevent you from qualifying for the best rates or deals.
Another option to consider is enlisting your spouse or life partner as a co-borrower. Co-borrowers can typically combine their incomes, both are responsible for paying the auto loan, and both get ownership rights to the vehicle.
When you have a co-borrower, your income sources are combined, but not your credit scores. While your temporary source of income won’t help you get approved for a loan, if your spouse or partner is still working, you may be able to increase your chances of getting a car loan.
Start Preparing for Your Next Car Loan
While applying for an auto loan while you’re furloughed isn’t likely to work right now, you can still prepare for one by saving, monitoring your credit reports, and evaluating your options such as enlisting a co-borrower.
We can also give you some help, too, at Auto Credit Express. We have a nationwide network of dealerships that work with borrowers in all types of credit situations. Once you’re ready to get in touch with a dealer, fill out our free car loan request form, and we’ll look for one in your local area that has the lending options you need.