Banks and lenders ask for proof of income in order to make sure you’re able to handle a car loan. How they verify your income is fairly simple, they ask for proof and run your information through an e-verification system. But it’s important you make sure you’re able to qualify before you head to your bank or car dealer.
What is the Verification Process?
The actual verification process is in the hands of the lender. If you listed a place of employment on your application, most of the time the lender will use an e-verify system in order to make sure you’re actually an employee of the place you listed as your employer. If you’re self-employed, the lender may ask to see recent tax returns to further verify your employment and income status. It all depends on the lender and what you do for work.
What Auto Lenders Need to Verify Income
If a lender asks for proof of income, you’ll need to know what to give them – which depends on how you’re paid. If you work full time and you’re a W-2 employee, you’ll need a copy of a recent pay stub. If you’re an independent contractor or 1099 employee, you’ll usually need to provide copies of your recent tax returns. Lenders like to see that you’ve been with the same job for about six months, and may ask for a three-year work history.
Whether or not you need to provide proof of income depends on four criteria:
- Credit score – This is the biggest one. If you have bad credit, the lender will ask for proof of income and will have a minimum income requirement you must meet (generally $1,500 to $2,000 a month pre-tax). This is to make sure you’re able to make the monthly payments. If you have excellent credit, you may not need to show proof of income, but there are sometimes exceptions to that.
- Price of car – If you have good credit, and choose to finance a luxury car, the lender may ask for proof of income to make sure you’re able to handle the higher monthly payments.
- Down payment – If you have bad credit, you need to provide a down payment of at least $1,000 or 10 percent of the vehicle’s selling price. If you have good credit, in most cases you don’t need a down payment, although having one will lower your monthly payments.
- Debt to income – When the lender calculates your debt to income (DTI) ratio, they take your regular monthly bills and divide that by your pre-tax income. If your DTI is too high, the lender may ask for proof of income to very your DTI amount is accurate.
If you come into the buying process with good or excellent credit, many lenders won’t even ask for proof of income. When they might need to see it is if you’re planning on purchasing a high-end luxury or sport vehicle, but this can vary by lender. If you have bad credit, on top of making sure you meet the criteria listed above, lenders will typically ask for six to eight personal references with names, phone numbers, and addresses listed.
Once the lender verifies your income and employment, you can move on in the car buying process and get financing.
Ready for a Car Loan?
If you’re ready to finance a car, but worry you won’t be able to qualify due to credit, we want to help. Here at Auto Credit Express, we work with a wide range of dealers all across America that have lenders available to help people with credit challenges. Our service is simple and free. Just fill out our easy online auto loan request form to get started.