Can I use unemployment checks as a car loan down payment?
Cash is king in most purchases, but your work history is also important in the world of auto financing. Unemployment checks, once cashed, can pretty much be used for anything you want, including a down payment on a car loan. However, whether or not you can get approved for a car loan while you are unemployed is another matter entirely.
Unemployment checks as a deposit
Having a down payment is a great way to lower your monthly car payment, lower interest charges over the life of your loan, and improve your chances of getting approved for financing when you have bad credit.
You can use a stock exchange, cash and even your unemployment checks. Once you’ve cashed that unemployment check, it’s up to you to spend it. Auto lenders don’t take a personal loan or other forms of borrowed money as a down payment, but unemployment checks aren’t borrowed – they’re up to you to spend as you wish.
However, get approval from finance a vehicle while you are unemployed may not be possible, and it may not be the best decision for you financially until you get back to work, anyway.
Unemployment and auto credit
Just having a down payment is usually not enough for a car lender to consider you for financing – they should verify your source of income as well. This means providing proof that you have a stable income for a certain period of time. Typically, auto lenders require borrowers to have been in their current job for about six months to a year, at a minimum.
If you have been collecting unemployment checks, this usually means that you have been fired, placed on leave or made redundant. The problem with collecting unemployment checks and obtaining auto financing is that lenders require your income to be consistent, and unemployment checks are a temporary source of income.
Since most states only allow them to deploy for up to six months, lenders won’t accept temporary income that doesn’t last for the life of the loan. Auto loans are much longer than six months, and last on average five to six years nowadays.
Auto lenders also do not accept sources of income that cannot be captured or proven, such as tip income that has not been reported. One of the main things auto lenders look for is proof of your ability to repay that loan, not just your ability to provide a lump sum down payment.
Auto loans during unemployment
If you really need a vehicle, the money you saved for a down payment on your unemployment checks could be used to pay for a cheaper car for now. It may not be a permanent fix, but vehicle financing is unlikely to happen at this time.
Although there are also dealers called buy here pay here (BHPH) used car lots. These dealerships are also lenders, offering what is called internal financing. Since they don’t have to rely on a third-party lender to approve the car loan, they likely won’t check your credit.
Some BHPH dealerships offer rental vehicles with an option to buy, where the dealership retains title to the car until you make the final payment. The advantage of this agreement is that if you find that you can no longer afford the vehicle, you can usually return it unconditionally.
Your name is not on the title, and BHPH dealerships do not always report loans to credit reporting agencies, meaning your credit reports would not be damaged for the return of the car. However, if you return the vehicle, you will not earn any equity.
Since unemployment checks are temporary, hiring a car can be a solution if you need transportation to help you for a little while until you find another job. However, a lease with an option to buy may mean bi-weekly or weekly payments instead of monthly, and you may have to pay an interest rate that is higher than the average interest rate.
Additionally, some BHPH dealers may still not accept your unemployment checks as income if they do not last for the duration of the rental agreement.
Get in touch with a bad credit auto lender
If you need a vehicle and want to connect with a bad credit dealership near you, we want to help. Auto Express Credit has a network of dealers who work alongside lenders with the resources to help borrowers in many types of unique situations. We will search for a dealer in your area once you have completed our auto loan application form.