When you’re submitting your information for a car loan, your check stubs are something that nearly every auto lender is going to ask for. We explore the basic income requirements and why lenders verify your income source.
Do I Need to Bring My Check Stubs?
When you apply for new credit, like a car loan, your lender is going to want to know how you can pay for it. Most auto lenders review your credit reports to check out how you’ve handled past credit, and also look at your employment history.
If you have less than perfect credit, you may want to work with a subprime lender through a special finance department. This could mean more questions regarding your past work history and income sources, since subprime lenders don’t base your ability to pay for a car loan on just your credit reports. They look at many aspects of your personal situation to see how well you’re likely to stay on course if you’re approved for a bad credit auto loan.
No matter what lender you go through, both traditional and subprime car lenders ask for your recent computer-generated check stubs to verify your income source. As a general rule, most lenders prefer a W-2 income.
If you’re self-employed (1099 income), you may have some issues being considered for an auto loan when you have poor credit. It’s not impossible, since there are many types of lenders, but some don’t accept 1099 income for credit-challenged borrowers.
When it comes to how much income you should be bringing in each month, car lenders require a minimum of around $1,500 to $2,500 before taxes. When you list your income on an auto loan application, be sure to put your gross income, not your take-home pay.
Work History and Income Stability
Lenders need to see stability. A stable borrower is more likely to repay a loan, which means the longer you’ve worked at the same place, the higher your chances of getting approved for car financing.
If you’ve recently changed jobs, or you’ve been there for less than six months, you may have better luck waiting until you hit at least the six-month mark to be considered for an auto loan. If you’re a first-time car buyer, a subprime lender may require you to have been at the same job for at least one year.
A bad credit auto lender is likely to require your work history from the last three years, and they're looking for no large gaps between jobs. Large gaps are typically defined as being unemployed for longer than 30 days between jobs.
If you recently switched jobs but the new job is in the same field of work, lenders may allow some wiggle room if the rest of the work history is solid. For example, let’s say you were an accountant but you left that job (Job A) to work as an accountant somewhere else (Job B), and you’ve only been there for three months. However, let’s say you worked at Job A for around five years. While you just changed jobs, you’re in the same field of work at Job B, which is more likely to be acceptable than switching from say, a bartender to a taxi driver.
What About Tipped Income or My Second Job?
If the majority of your income is tip income, and those tips aren’t being reported, they can’t be used to help you qualify for an auto loan. Lenders only consider what’s listed on your tax returns or check stubs – not the cash that isn’t reported.
If you haven’t been reporting your tips but need a car loan, start right away if you want a lender to consider that income.
As far as a second job, most auto lenders only consider one main source of income for their monthly requirement. However, a second source of income can lower your debt to income (DTI) ratio!
Your DTI ratio considers how much you owe on expenses each month, and compares it to your total income. A second source of income can help lower your DTI ratio, which increases your chances of a car loan approval.
On to Car Shopping!
Again, all lenders vary in their specific requirements, but auto lenders almost always need your check stubs to verify your income. Your personal situation may create the need for more income-related items, like tax returns or bank statements.
Finding an auto lender to work with a low credit score hasn’t been historically easy. That’s where Auto Credit Express can help! We have a nationwide network of dealerships that are signed up with subprime lenders who have the expertise to work with all types of credit situations.
To get matched to a dealer near you, simply fill out our free car loan request form. There’s never an obligation to buy anything, so what are you waiting for? Get started today!