It can be a bit intimidating to apply for a car loan if part of your income is based on tips. That does not mean that it’s impossible to finance a car as a server or waiter, just that you need to plan ahead. Let’s have a look at a few potential challenges to getting a car loan as a waiter or waitress and ways to overcome those challenges.
Car Loans with Tip Income: Challenges
The first potential obstacle to overcome is the minimum gross monthly income that a lender is going to require. In many instances, that minimum requirement is $1,450 per month. Given the average wage in the service industry, it may be hard for a server to meet that requirement even working full-time, without reporting all of his or her tips. Many employers require that you report your tips at the end of the shift so they can be taxed; however, we all know that waiters and waitresses have a habit of fudging those numbers in order to keep a few extra dollars. While that is understandable, you will want to report all tips for at least six months prior to applying for a loan to insure that you met minimum income requirements.
The second potential challenge is time on the job and hours worked per week. We mention these together because they are very much related. Lenders want to see that you have been on the job for at least one year prior to your application. They also want to see that you are working full-time (36 plus hours per week). For service workers, some lenders will consider two part-time jobs that equal the 36 plus hour requirement, so long as you have been working both of them for more than a year.
The third challenge to a car loan for a server is your debt-to-income (DTI) ratio. This challenge is faced by every potential borrower. Banks want to see that your DTI is less than 36 percent of your gross monthly income. Since DTI includes all recurring monthly payments(rent, utilities, etc) plus the payment on the loan that you are applying for, you can see how 36 percent is hard to meet. The only way to overcome this is to lower your monthly payments, either by paying down credit card balances(the monthly payment lowers as the balance lowers), paying off small loans, ending memberships and subscriptions, or cutting back on services such as cable and cell bills.
Auto Financing Options for Servers
The challenges discussed above are prevalent across the lending industry, but you do have one option open to you: specialty lenders. These lenders do have lending guidelines that must be adhered to and these guidelines are very similar to other lenders, but they are a little less rigid. They may offer car loans to waitresses who have a minimum income as low as $1,250 per month, bad credit, less than one year on the job/s, and who may not have 36 work hours available to them.
These lenders are able to offer riskier loans for several reasons. Many work through dealers in your area, but they require a higher interest rate than some lenders and their loans must be repaid in a shorter amount of time. Despite these conditions, a car loan from a specialty lender is a smart route to take in order to build your credit history. Go here to apply online.