Can you finance a car with unemployment?

If you collect unemployment checks, getting approval to finance a car becomes more difficult. Here is what you need to know about unemployment and auto loans.

Checks and unemployment income

If you’ve lost your job unintentionally, unemployment checks can be a saving grace for everyday expenses. But if you need financing for a vehicle, it might not be in the cards right now.

Lenders need proof of income, and for income to be consistent over the life of the loan. Since unemployment checks are temporary, with most states only allowing six months of payments throughout the year, you’re unlikely to be approved for a car loan.

When your unemployment checks run out, the lender should know that the monthly loan payments will continue and the car loan term is still longer than six months. Credit unions, banks, and indirect lenders who work with dealer financial services will not accept unemployment checks as income.

What about a co-signer or co-borrower?

Co-signers and co-borrowers can help bad credit borrowers get approval for a car loan because they give the lenders an additional guarantee that the loan will be paid off. They can also help those with bad credit get approved – and possibly lower interest rates or better loan terms.

But if your income is not stable or constant, you will not be approved. Even if you find someone who is willing to co-sign, the lender still requires that you meet the income requirements individually to be considered. And since unemployment is temporary, and won’t last for the duration of the auto loan, that doesn’t count.

At the same time, you may be approved if you are married and your spouse has a regular income and agrees to be a co-borrower. In fact, lenders allow the income of a co-borrower to be added to that of the main borrower if he is a spouse. But since the primary borrower has only temporary income, the borrower with income becomes the primary borrower, while the borrower with temporary income becomes the co-borrower.

While financing through a dealership’s finance department or obtaining a direct loan from a credit union or bank may seem like your only options, there are two more you might explore if you really need a vehicle.

Other financing options

You may have heard of dealerships that don’t check your credit score. These merchants, called buy here pay here (BHPH) lots, are more concerned about your ability to pay the monthly loan payments. BHPH lots have internal financing, which means that the concessionaire is also the lender. They usually require a large down payment, sometimes as much as 20% or more of a car’s sale price.

While they don’t check your credit score, they still do check income sources and require it to last for the life of the loan. However, these lots are less picky about sources of income. They may also be able to offer an option to buy lease or, if you have a large down payment, the dealer may be able to offer a shorter loan term.

Two things to keep in mind before looking for a BHPH dealer:

  • They may not report the loan or the timely payments to the credit bureaus.
  • Your interest rate is likely to be above average.

Some BHPH lots do not report loans or payments on time to the credit bureaus, which means it would not improve your credit score. However, they can report any missed or late payments and repossession. Be sure to ask the dealer about their reporting practices before financing if you are looking to improve your credit score.

Another thing to consider is that BHPH dealers, your interest rate will likely be above average. It could be seen as a compromise for them not to check your credit.

However, if financing a vehicle from a BHPH dealership isn’t right for you, or if you don’t qualify for any in-house financing options, you have another option: pay cash.

Buy a car with money

If you have the money and can’t get financing with your unemployment income, you can always buy a car from a regular dealership, BHPH dealership, or private seller.

Saving as much as possible on your unemployment checks, without neglecting your other bills or finances, could allow you to buy a vehicle on the cheap. It might not be your ideal car, but there are plenty of websites and ads placed by traditional dealers, BHPH dealers, and private sellers.

Bargaining is common to all three, but be sure to do your research on the private seller’s list and ask plenty of questions about the condition of the vehicle, as private sellers don’t have to follow dealer rules and regulations.

You can also pay cash for a car from a lot or from a BHPH dealership – money is king. Tax refunds, for some, are a big lump sum of money and could really help with the purchase of your next vehicle, or serve as a down payment for financing once you have regular income.

Are you looking for a dealer?

If you need a dealer who can work with you, we want to help. Here has Auto Express Credit, we connect bad credit borrowers with dealers who work with subprime lenders. Subprime lenders are bad credit lenders who consider more than your credit score for approval and work with borrowers with unique credit situations.

To get to work finding a dealer near you, simply complete our free, secure, and quick form. auto loan application form.

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