How you report your income can sometimes determine if you will get approved for a bad credit auto loan
We've seen it before
If you have poor credit and you get paid under the table or you don't get anything withheld from your pay you may be wondering about your chances of getting approved for car loans with bad credit.
Because we've been in the business for over two decades, we've answered this question many times here at Auto Credit Express. Our responsibility to consumers with bad credit extends to our web site that has a bad credit auto loan application – something we felt was needed after seeing the disappointment and frustration on the faces of customers that have visited a dealer that doesn't offer second chance auto loans.
And while these people can check with their local tote the note dealer, this won't help their auto credit issues since these dealers don't report loans or loan payments to the credit bureaus and many of these loans result in repossession.
One reason many bad credit customers end up at a tote the note dealer is that they're unable to get approved for a bad credit auto loan because they don't receive a W-2 at the end of the year. They're paid under the table either in cash or with a check without any money taken out for social security, Medicare or income taxes.
Some employees don't receive a W-2. If you are an independent contractor, you should receive a form 1099-MISC. You then report this income, less any expenses, on the Schedule C of your 1040 income tax form.
But even if your employer pays you under the table, you are still required by law to file your taxes and report this income.
Proof of Income
Traditional banks usually don't require proof of income for a car loan. This isn't the case with lenders that deal in auto loans for bad credit. If you don't get a W-2 or your income is not listed on a professionally prepared tax return, it might as well not be there. Even if you have bank records that show you've received this money with daily or weekly deposits, if it isn't listed on your tax return, you don't have “proof” of income.
Bad credit lenders also have minimum monthly income requirements. If you are paid in cash or by 1099, they will use the income on your tax return to compute a debt-to-income ratio to come up with a budget for a car payment. This can affect individuals with cash and 1099 income in two ways:
1. Most bad credit lenders have minimum monthly income requirements that range from $1,500 to $1,800 per month. If you make this much and your tax return doesn't show it you won't qualify for a loan.
2. If your reported income meets a lender's requirements but your income is actually higher, there is always the chance that your monthly expenses are out of proportion to your reported income. For example, if you report an income of $2,000 per month but your actual income is $3,500, you might have monthly expenses of $1800. Even though your actual debt to income ratio would work, the difference between the income you report and your actual expenses would not qualify you for a bad credit auto loan.
The Bottom Line
If you receive your income in cash or as an independent contractor and you think you might need to finance your next car with a bad credit auto loan, you need to look at the income you pay taxes on and how this will affect the income and debt to income requirements of these lenders.
Auto Credit Express specializes in placing customers with bad credit with dealers that can help them. These affiliate dealers are knowledgeable and work with a broad spectrum of lenders to ensure you have your best chance of getting approved for a car loan.
So if you are serious about getting your car credit back on track, you can begin by filling out our bad credit car loan application now.