If you’re collecting unemployment checks, getting approved to finance a car becomes more difficult. Here’s what you need to know about unemployment and auto loans.
Unemployment Checks and Income
If you’ve lost your job involuntarily, unemployment checks can be a saving grace for everyday expenses. But if you need financing for a vehicle, it may not be in the cards right now.
Lenders need proof of income, and for the income to be consistent over the entire loan term. Since unemployment checks are temporary, with most states only allowing six months of payments throughout the year, you aren’t likely to get approved for an auto loan.
When your unemployment checks run out, the lender needs to know that the monthly loan payments will continue, and car loan terms are always longer than six months. Credit unions, banks, and indirect lenders that work with finance departments in dealerships aren’t going to accept unemployment checks as income.
What About a Cosigner or Co-Borrower?
Cosigners and co-borrowers can help bad credit borrowers get approved for an auto loan, as they give lenders additional security that the loan will be paid. They can also help those with bad credit get approved – and possibly get lower interest rates or better loan terms.
But if your income isn’t steady or consistent, you won’t get approved. Even if you find someone that’s willing to cosign, the lender still requires that you meet the income requirements individually in order to be considered. And since unemployment is temporary, and won’t last for the duration of the car loan, it doesn’t count.
At the same time, there’s a chance you could get approved if you’re married and your spouse has a regular income and agrees to be a co-borrower. This is because lenders allow a co-borrower’s income to be added to that of the primary borrower if they’re a spouse. But since the primary borrower only has a temporary income, the borrower with income becomes the primary borrower, while the borrower with temporary income becomes the co-borrower.
While financing through a dealership’s finance department or getting a direct loan from a credit union or bank may seem like your only options, there are two more you could explore if you’re really in need of a vehicle.
Other Finance Options
You may have heard of dealerships that don’t check your credit score. These dealers, called buy here pay here (BHPH) lots, are more concerned with your ability to pay for the monthly loan installments. BHPH lots have in-house financing, which means that the dealership is also the lender. They typically require a large down payment, sometimes asking for 20% or more of a car’s selling price.
While they don’t check your credit score, they still verify income sources and require it to last the entire loan term. However, these lots are less picky about income sources. They may also be able to offer a rent to own contract, or if you have a significant down payment, the dealer may be able to offer a shorter loan term.
Two things to keep in mind before looking for a BHPH dealership:
- They may not report the loan or timely payments to the credit bureaus.
- Your interest rate is likely to be higher than average.
Some BHPH lots don’t report loans or on-time payments to the credit bureaus, which means it wouldn't improve your credit score. They may report any missed or late payments, however, and a repossession. Be sure to ask the dealer about their reporting practices before financing if you’re looking to improve your credit score.
Another thing to consider is that at BHPH dealerships, your interest rate is probably going to be higher than average. This could be considered the trade-off for them not checking your credit.
However, if financing a vehicle from a BHPH dealer doesn’t feel right to you, or you don’t qualify for any in-house financing options, you have another option: paying cash.
Buying a Car With Cash
If you have the cash and you can’t get financing with your unemployment income, you can always purchase a car from a regular dealership, BHPH dealer, or private seller.
Saving as much as possible from your unemployment checks, without neglecting your other bills or finances, could allow you to buy a cheap vehicle. It may not be your ideal car, but there are many websites and listings placed by traditional dealerships, BHPH dealers, and private sellers.
Negotiating is common with all three, but be sure to do your research on the private seller’s listing, and ask lots of questions about the condition of the vehicle, since private sellers don’t have to follow the rules and regulations that dealerships do.
You could also pay cash for a car from a BHPH lot or dealer – cash is king. Tax refunds, for some, mean a large lump sum of cash, and could really help with the purchase of your next vehicle, or serve as a down payment for financing once you have a regular income.
Looking for a Dealership?
If you need a dealership that can work with you, we want to help. Here at Auto Credit Express, we connect bad credit borrowers with dealers that work with subprime lenders. Subprime lenders are bad credit lenders that consider more than your credit score for approval, and work with borrowers with unique credit situations.
To put us to work finding a dealership near you, simply fill out our free, secure, and quick auto loan request form.