Consumers responsible for making child support payments as well as those who depend on this type of income should know how these situations, especially if they have poor credit, could impact their chances of an auto loan approval. Child support income, like other types of non-taxable income, typically can't be used as a sole source of income when you're financing a car with bad credit. There are specific requirements that lenders have regarding income and employment, and the source of your income usually plays a role.
Can You Use Child Support As Income For A Loan?
Before beginning the loan process, consumers with bad credit need to be aware of the fact that most subprime lenders look at child support much differently than other types of income. The reason for this is that these payments cannot be garnished. Child support, like many types of unearned income, is non-taxable, which is why it can't be garnished – seized with a court order to settle a debt if needed.
This means that if a borrower with child support income has difficulty making payments, and the vehicle is repossessed, the lender cannot obtain a court order to garnish child support. That means no one can touch your child support money to pay the outstanding balance once you've defaulted on a loan. Here's the catch, since lenders know child support cannot be garnished, they typically don't count it as income when they're calculating your approval.
The reality is that subprime lenders face a higher exposure to repossession. The result is that high-risk lenders are especially careful when they look at an application that lists any type of income, including child support, that can't be garnished.
However, there are at least two situations in which child support income is involved in helping applicants have a better chance of getting a loan approval:
- If the borrower has additional income from a job or other source that can be garnished (the longer the employment time and the higher the income from this source, the better the chances).
- If there are contributing factors in support of an applicant such as a long-term job or residence stability (living or working in the same area for a number of years) and/or "situational" versus "habitual" bad credit (where current credit issues are the result of a single event, such as a medical problem as opposed to a history of late payments), this will also increase the chances of approval.
For borrowers who receive child support payments, proof of this income is required. This means borrowers will need to furnish the lender with copies of the court order and/or divorce decree stating both the dollar amount as well as how long the payments are scheduled to occur.
Child Support Payment Issues
Taking a look at the other side of the issue, consumers with damaged credit applying for a car loan that are currently delinquent in their child support payments will find it equally difficult to get approved. The reason is simple: individuals that find themselves in this situation tend to change jobs frequently.
Usually this results from the fact that when the court finds them at an employer and begins to garnish their paychecks to cover delinquent payments, these individuals often leave that job for another employer in order to avoid the garnishment order.
When a judgment for delinquent child support payments appears on an applicant's credit reports, most lenders will automatically reject the loan request not only because of the “job hopping” but also for another simple reason: if someone refuses to support their own children, how can they be trusted to make regular payments on a car loan?
But even in this extreme situation, there is something that can usually be done.
In this case, if a delinquency does exist but payment arrangements have been made with child services and it can be proven with written documentation from either child services or the court, then some lenders will take a second look.
Auto Loan Options Without Earned Income
If you need to buy a car and only have unearned income, such as child support payments, all hope isn't lost. You may still be able to get the vehicle you need by going to a buy here pay here (BHPH) dealership.
BHPH dealers don't have as many income rules as typical subprime lenders that work with bad credit car buyers. In fact, as long as you meet the income and down payment requirements of a BHPH dealership, you can usually finance a vehicle. These dealers are also lenders and usually aren’t concerned with details like where your income comes from.
When you visit a BHPH car lot, you choose a used vehicle from their inventory, so the car you pick determines how much you need to put down. Don't expect to find the latest models with low mileage, though these gems can sometimes be found, but you shouldn't settle for a clunker that's falling apart. Like all used vehicles, make sure you have it inspected by a certified mechanic before signing on the dotted line.
It's also good to know that not all BHPH dealerships check credit. However, if they don't, it's possible that they also won't report your payments to the credit bureaus. This means making on-time payments may not help you improve your credit score. Also, you may be required to make payments more often, perhaps every week or two, and you may have to do so in person.
The Bottom Line
In the case of child support, both income from it and payment delinquencies for it can be an issue with any lender. But both problems become major obstacles if the borrower has less than perfect credit. To improve the odds of approval, we encourage borrowers to bring any and all documentation with them on their first dealer visit.
One more tip: Auto Credit Express matches consumers with problem car credit to those dealers that can offer them their best opportunities for approved auto loans.
So if you're ready to establish your auto credit, you can begin now by filling out our online auto loan request form, and we will get the ball rolling for you.