When it comes to proving your income to meet a bad credit car lender’s requirement, you’re going to need a check stub. But if you make a lot of your income in tips, you could run into problems getting approved for an auto loan if this income isn’t reported.
Income Requirements of Bad Credit Car Lenders
If you’re working with a subprime auto lender, you’re generally going to need a minimum of at least $1,500 to $2,000 in gross monthly income. Gross means before taxes are taken out. This is why a computer-generated check stub is needed. Check stubs also need to show year-to-date income.
Lenders want to see your yearly income because they want to be sure that your income is steady and consistent. Additionally, when you’re working with a bad credit lender, you may also be asked your work history. Subprime lenders typically prefer that borrowers have a continuous job history of at least three years, and prefer you to be at your most recent job for at least a year.
If your income source is mainly tips, which is usually the case with servers and delivery drivers, you need to report those tips so that the income is taxed and shows up on your check stubs or tax returns. If that income isn’t reported, it won’t help you get a car loan with a subprime lender.
If your income isn't reported to the IRS each year on a 1040 tax form, you could get into some trouble with the IRS. If you make more than $30 a month in tips, the tips have to be reported or you risk getting audited.
Other Car Buying Options
While you may not be able to use your unreported tip income to meet the initial requirements for an auto loan with a traditional or subprime lender, you may be able to go through a buy here pay here (BHPH) dealership. BHPH dealers play a double role when it comes to car financing, because they’re also your lender.
Since these dealerships don’t rely on other lenders to approve you for financing, you apply for the auto loan, get approved, and take delivery of your vehicle at the lot.
Another big plus to BHPH dealers is that they don’t usually check your credit reports or score during the approval process, and their main concern is that you have enough income to make the payments. If you can provide a down payment, of sometimes even 20% or more of a car’s selling price, and prove you can afford the loan payments, you could get approved for an auto loan.
The downside to these dealerships is that the loan may not be reported to the credit reporting agencies, meaning your credit score won’t improve, even if you stay current on the payments. Additionally, be prepared to pay a higher than average interest rate with a BHPH dealer, with your vehicle choices limited to used cars.
Get Connected to a Bad Credit Car Dealership
The bottom line when it comes to tipped income is that you need to report cash tips if you want to get approved by a subprime lender. Without proof that you have enough income, getting approved for an auto loan could be next to impossible unless you work with a BHPH dealership.
If you need additional income and help getting into your next car loan, you could enlist the help of a co-borrower (typically a spouse) and use their income to help meet the requirements. Co-borrowers’ credit scores are looked at separately, but both borrower’s incomes are combined to meet the income standards if they are your spouse.
If you’re ready to start vehicle shopping, you could skip over the hassle of looking for a dealer and work with us at Auto Credit Express. We have a nationwide network of bad credit dealerships, and we’ll look for one in your area for free, after you’ve completed our auto loan request form. You can fill it out right now, completely online, and there’s no obligation to buy. Get started now!