Cash is king when it comes to most purchases, but your employment history matters in the world of auto financing, too. Unemployment checks, once cashed, can pretty much be used for anything you’d like, including a down payment on a car loan. However, whether or not you can get approved for an auto loan while you’re unemployed is another thing entirely.
Unemployment Checks as a Down Payment
Having a down payment is a great way to lower your monthly car payment, decrease interest charges during your loan term, and improve your chances of getting approved for financing when you have bad credit.
You can use an equity trade-in, cash, and even your unemployment checks. Once you cash that unemployment check, it’s yours to spend. Auto lenders don’t accept a personal loan or other forms of borrowed money as a down payment, but unemployment checks aren’t borrowed – they’re yours to spend in whatever way you want.
However, getting approved to finance a vehicle while you’re unemployed may not be possible, and it may not be the best move for you financially until you return to work, anyway.
Unemployment and Auto Loans
Just having a down payment isn’t usually enough for an auto lender to consider you for financing – they also need to check your income source. This means providing proof that you’ve had a steady income for a while. Generally, car lenders require borrowers to have held their current job for around six months to a year, minimum.
If you’ve been collecting unemployment checks, it typically means you’ve been laid off, furloughed, or let go from your job. The issue with collecting unemployment checks and getting auto financing is that lenders require your income to be consistent, and unemployment checks are a temporary source of income.
Since most states only allow them to roll out for up to six months, lenders aren’t going to accept temporary income that doesn’t last for the duration of the entire loan term. Car loans are much longer than six months, lasting around five to six years on average these days.
Auto lenders also don’t accept income sources that can’t be garnished or proven, such as tipped income that hasn’t been reported. One of the biggest things car lenders look for is proof of your ability to repay that loan, not just your ability to provide a lump sum down payment.
Car Loans While Unemployed
If you really need a vehicle, the money you saved for a down payment from your unemployment checks could be used to pay for a cheaper car for the time being. It may not be a permanent solution, but financing a vehicle isn’t likely to happen right now.
Although, there are also dealerships called buy here pay here (BHPH) used car lots. These dealers are also lenders, offering what’s known as in-house financing. Since they don't have to rely on a third-party lender to approve the auto loan, they probably won’t check your credit.
Some BHPH dealerships offer rent to own vehicles, where the dealer holds onto the car’s title until you make the last payment. The advantage of this agreement is that if you find you can no longer afford the vehicle, you can usually return it with no strings attached.
Your name isn’t on the title, and BHPH dealerships don’t always report loans to the credit reporting agencies, which means your credit reports wouldn’t take any damage for returning the car. If you return the vehicle, however, you won’t earn any equity.
Since unemployment checks are temporary, a rent to own car might be a solution if you need transportation to get you through for a little while until you get another job. However, a rent to own agreement could mean biweekly or weekly payments instead of monthly, and you may have to pay a higher than the average interest rate.
Additionally, some BHPH dealers still may not accept your unemployment checks as income if it won’t last for the duration of the rental agreement.
Getting in Touch With a Bad Credit Auto Lender
If you’re in need of a vehicle and you want to get connected to a bad credit dealership near you, we want to help with that. Auto Credit Express has a network of dealers that work alongside lenders with the resources to assist borrowers in many types of unique situations. We’ll look for a dealership in your area once you complete our secure auto loan request form.