Tourist towns make great spots for many workers that make tip incomes, such as waiters, bartenders, cab drivers, and hospitality professionals. If you make income in tips or get paid in cash, you should know that this can make qualifying for a car loan difficult if you have bad credit.
Financing a Car with Tip Income and Bad Credit
If you make tip income at your job and you have good credit, you likely won't run into issues if you need to finance a car. If your credit is less than perfect, however, those lenders willing to offer you a loan will have stricter requirements, and these requirements can create issues for borrowers with tip incomes.
Bad credit lenders want you to be able to afford the car, so you can easily make all your payments on time and improve your credit. In order to qualify you, they’ll take a very close look at your financial situation and require you to have proof of income. Here are the typical income requirements on a poor credit auto loan:
- Minimum Income: You have to make a minimum monthly income of $1,500 to $2,000 before taxes from a single source, though the amount varies by lender. The more you make, the easier it is to qualify, all else being equal.
- Debt to Income Ratio: These lenders will calculate your debt to income (DTI) ratio to determine your available income. This is done by adding up your monthly bills and dividing this by your pre-tax monthly income. For example, if you make $2,600 a month and your monthly bills add up to $1,100, your DTI ratio would be 0.423, or 42.3 percent. Typically, poor credit lenders won't approve you if your DTI ratio tops 50 percent – including a potential car and insurance payment.
Even if a car buyer that makes tip income in a tourist town meets the income qualifications, proving this income could be a problem.
How to Show Proof of Income if Paid in Cash or Tips
Subprime lenders require proof of income, as well. Normally, they want to see a computer-generated paycheck stub from the past 30 days. In cases where a borrower doesn’t receive a W-2, such as if they're paid in cash, they'll sometimes accept two or three years of tax returns – bank deposit records don't count.
This means that your tax returns must show a net income after expenses that meets the lender's minimum income and DTI ratio requirement. Bottom line: if you make tips at your job, you better make sure you're reporting all of your income – without too many deductions for expenses – if you want to finance a car. Even if you're making enough to qualify, it doesn't matter if your tax returns don't accurately reflect this.
If this is the case and your tax returns don’t show enough net income, getting a loan from a subprime lender won't be possible. At this point, your best bet for getting a car is to either pay cash or get financed at a buy here pay here dealership, where they aren’t as strict about how you get paid.
Buying a Car with Cash Tips
Even if you're making a good living with tip income in a tourist town, or anywhere else around the country, getting a car loan through a bad credit lender isn't happening if you don't meet or can't prove a qualifying income.
If you're trying to get a car loan with less than perfect credit, it also helps to work with the right dealership. Auto Credit Express is connected to a nationwide network of special finance dealerships that are experienced in handling difficult credit situations. We'll work to match you to a dealer near you if you start the process by submitting our free auto loan request form online.