Getting a car loan as a job-seeker can be difficult, especially if you are not receiving unemployment benefits. Let’s look at the challenges to obtaining the car loan you need while looking for a job and one possible option you may have.
Obstacles for Job-Seekers
Being a bad news first sort of group, we will dive right into the challenges that stand between you and a car loan. They include: low income, time on job, and debt-to-income ratio. If you have been unemployed for very long, there is the additional possibility that you have bad credit from missing payments while not working. Let’s look at each challenge and dissect why it is an obstacle to getting a car loan as a job seeker.
Low Income: large national lenders want to see that a person has at least $1,800 per month in gross income before they will even consider a car loan application. Credit unions and small, local lenders may be willing to consider a gross income as low as $1,450 per month.
Time on job: in general, lenders want to see that you have one year on your current job or two years within the same industry. If you are applying for a car loan as a job seeker, this will be impossible to meet unless you are working while seeking new employment.
Debt-to-income ratio (DTI): national lenders want to see that you have a DTI that is less than 36 percent. This means that all of your recurring monthly payments, including the payment for the loan you are applying for, must be less than 36 percent of your gross monthly income. This requirement is difficult to meet even with unemployment benefits given that they are usually 65 percent of your former income or less.
Bad credit: all of the lending guidelines we have mentioned so far have been for borrowers who have a a credit score in excess of 700. If your credit score is lower, you may be required to have a higher gross monthly income and/or a lower DTI.
Auto Loans while Job-Hunting: Options
First things first: many unemployed people think that a buy-here-pay-here dealership is their only option. In general, they are a poor option no matter how desperate you are for a car. That said, car loans for job seekers may be found through specialty and subprime lenders.
Many specialty lenders operate online only as a way to keep their costs down, allowing them to offer car loans to job seekers, bad credit auto loans, and no credit auto loans. These lenders may consider a gross monthly income as low as $1,200, credit scores that linger near 500, and DTIs that approach 50 percent.
Borrowers must keep in mind that these loans come at a premium in that the interest rate will be higher than a loan through a national lender; the repayment term will be shorter; and, in some instances, you may be restricted to buying from a partner dealership. These loans will be reported to all of the major credit agencies; however, improving your credit score for the future if you make your payments as agreed. Go here to apply online.