Potential borrowers with problem credit that are either paying child support or that count child support payments as at least a part of their income need to understand how most high risk lenders treat these situations
What we have observed
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.
Here at Auto Credit Express we have seen, firsthand, how both situations can affect the loan process because for the past twenty years we've been helping car shoppers that find themselves questionable credit situations that are searching for online auto loans locate those dealers that represent their best chances for auto loan approvals.
So let's take a look.
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.
What this basically means is that if a borrower with child support income has difficulty making payments to the point where the vehicle is repossessed, the lender cannot obtain a court order to garnish those funds it in order to satisfy a judgment if there is an outstanding account balance once the vehicle is sold.
Compounding the problem is the reality 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.
But there are at least two situations in which child support income is involved where applicants might have a better chance of getting a loan approval:
1) 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).
2) If there are contributing factors in support of an applicant such as 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 slow payments), this will also increase the chances of an approval.
Proving child support income
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 the 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 getting 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.
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 an 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 application.