A car can help bring you freedom and improve your quality of life in so many ways — from outings with friends and family to running errands and, yes, even job hunting. Having a car can mean you have reliable transportation to get to and from job interviews, however if you are job hunting, you may need a job to pay for the car. That may lead you to wonder “Can I get a car loan while on unemployment?” Let’s find out.
Navigating an auto loan while unemployed
Trying to qualify for a car loan while you’re unemployed may be tricky. Lenders need to see that you have a consistent income to feel more secure that you’ll make your payments, and make them on time. While unemployment benefits are a form of income, they typically expire after a certain period. As such, these benefits don’t usually qualify as proof of consistent income.
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Listing other sources of income
The good news is that “income” isn’t solely synonymous with “job salary.” Just as unemployment benefits are a form of (temporary) income, there may be other forms of income available to you beyond salary. Some of these may even qualify as consistent enough to be considered for an auto loan.
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Examples of alternative sources of income to list on a car loan application include:
- Pension
- Social Security
- Alimony or other support payments
- Rental income
- Investment dividends
Examining your credit score
Your credit score will be evaluated when a lender considers whether or not to approve you for car financing. Regardless of employment status or income source, you need to have an adequate credit rating and sufficient income to qualify for financing. Financing a car with bad credit will be more difficult and may come with less favorable terms and higher interest rates.
Finding a co-signer or co-borrower
Even with decent credit and alternative sources of income, you may find that you’re having a hard time getting approved for a car loan. One possible solution is to find someone to co-sign the loan. They’d need to have a steady income themselves and would be equally responsible for the loan and its monthly payments. A missed payment, for instance, might hurt both people’s credit scores. For that reason, cosigning is best reserved for parties who have a high level of mutual trust. Both parties must also be clear and comfortable with what this type of agreement implies.
Alternate ways to buy a car while unemployed
If the above options don’t work for you, there are still a couple of things you might be able to do:
Dealer financing
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Some car dealerships advertise that they’ll take customers with poor or no credit. These dealerships typically finance the car in-house, meaning they’re also your lender. These types of dealers, often called “buy here, pay here,” typically require a large down payment and higher-than-average interest rates.
Paying with cash
If financing through a dealer doesn’t feel like the right decision for you, and you can’t get financing otherwise, you could always fall back on buying with cash. Private sales may provide extra room to negotiate price because they aren’t tied to dealership sales targets. Paying with cash is understandably not always an option or easy to do if you’re in between jobs.
In summary
Let’s revisit your question: “Can I get a car loan while on unemployment?” As you now see, getting a car loan while unemployed can be challenging, but not impossible. Maintaining a healthy credit score can go a long way toward improving your chances of approval, regardless of employment status or income. You’ll also need to be able to show lenders some form of consistent income besides your unemployment benefits. Since everyone’s situation is different, the only sure way to know whether you’ll qualify for an auto loan is to apply. If you can’t get approved, there are a few other options such as finding a co-signer or paying with cash that may help you get a car.
Source: https://tholansonnha.com
Category: Finance
