If you have good to excellent credit, chances are a lender is going to take your word for the income you claim, but when you have poor credit, you have to show proof of income. The type of documentation needed to prove your income depends on the source. Different types of employment require different forms of proof, as does unearned income. If you find you're required to show proof of income, read on to find out what documents you need to bring to the dealership with you.
Proving Your Income as an Employee
If you're a W-2 employee, the most common form of employment in the US, your employer withholds various taxes from your paycheck (income, social security, medicare, etc.). When you're an employee, you typically receive a paycheck from your employer on a weekly, bi-weekly, or monthly schedule.
These checks usually come with a pay stub that lists your income and withholdings for the current pay period as well as year-to-date totals. This is what you need to bring to show proof of income when taking out a bad credit auto loan. Lenders typically ask for your most recent monthly check stubs, though the specific number required varies by lender.
If you get handwritten checks, or your check stubs don't include year-to-date income information, you typically can't use them. In these cases, you must contact your employer for either a computer-generated form that includes this information, or a letter from your employer listing your income, as additional verification.
Proof of Income for Self-Employed Persons
As a self-employed person, you don't get a W-2 form for tax purposes. If you're an independent contractor and you receive income from one or more sources, you get a 1099 form from each income source. If you have your own business and you work for yourself, you won’t receive any type of form. Since you aren’t paying income taxes on a regular basis like a W-2 employee, the IRS requires you to pay taxes on a quarterly basis.
For borrowers like this, lenders generally require at least two to three years of tax returns. On these returns, you use a Schedule C to report your yearly income. Lenders use your net income after business deductions as your gross income to qualify for a car loan. In some cases, your lender may also ask for bank statements to show the income from your job sources is actually coming into your accounts. However, bank statements alone aren't enough to provide proof of income.
Can Fixed Income Be Used?
When you no longer earn regular income, and only have social security or disability as your income source, you could run into a few issues regarding your income for a subprime lender. For starters, these lenders typically require a minimum pre-tax income of $1,500 to $2,000 a month, which, in some cases, can be difficult with this type of income. Additionally, these lenders also require that at least a part of your income must be garnishable, which SSI, SSD, and other tax-fee sources of income typically aren't.
To prove your income in this case, you need to provide your award letter from social security, but you still may not qualify for an auto loan due to the fact that this income isn’t garnishable. But, you may be able to offset this issue with a cosigner. If your cosigner has excellent credit and meets all the other lender requirements, you should be able to qualify.
The Bottom Line
If you have your documentation ready to go and you need a vehicle, start your auto financing journey here with Auto Credit Express. We work with a coast-to-coast network of special finance dealerships that have lenders ready to help people in many types of credit situations. You can get the process started right now by filling out our easy car loan request form today!