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    Is It Possible To Get A Car Loan Without A Job?


    Can you get a car loan without a job? The answer is yes, however, you may find some roadblocks when trying to get approved for the loan. For instance, you must have some other form of income. Additionally, you’ll need to choose the right lending institution since only a few agree to offer loans to unemployed borrowers. Even if you get an approval, you may have to settle for higher interest rates compared to that offered by banks and credit unions.

    Factors To Consider Before Searching For Lenders

    When you don’t have a job, your options are limited to buy-here-pay-here (BHPH) dealerships and subprime lenders. Hence, you must consider a few factors before you start looking for a lending institution.

    Do You Have Alternative Income Sources?

    If you apply for car financing, auto lenders will ask for proof of income. Even if you’re not working, you may have some other sources of income such as Social Security, retirement pension, alimony, disability pension, investment dividends, or rental property. You can include this information in your application to increase the chances of approval.

    Usually, lenders don’t agree to offer loans to borrowers with no proof of income or bad credit. Although rare, if one agrees to take the risk, it’ll charge a very high rate of interest. If you can show alternate sources of income, lenders will be reassured that you have the financial credibility to pay the monthly installments on time, thus improving your chances of getting the loan.

    Do You Have A Strong Credit Score?

    Lenders often look at the applicant’s credit score and financial history to gauge their creditworthiness. If you have a good rating with no outstanding dues or any bankruptcy filings, your application has a better chance of getting approved. 

    You may even be eligible for the lowest rates, flexible repayment terms, and any additional offers. In general, lenders consider a credit score of 750+ as good. Make sure to review your rating before you apply for a lending product. 

    To be on the safer side, you can also get a loan preapproval before visiting any dealerships. Even though it doesn’t guarantee you’ll be eligible for the same rate, it still helps you get a broad estimate of the overall rates that you can get based on your score. 

    Can You Bring A Cosigner?

    Another good option to increase your chances of getting approved is by adding a cosigner. Preferably, this is a friend or family member who has a good credit report and regular employment. Since the cosigner will be considered as an additional guarantee, lenders will view you as a lower risk applicant. This will increase your chances of approval. 

    Missed payments will be reflected on the cosigner’s report and this individual will be liable to pay on your behalf. Therefore, make sure that you and the cosigner both understand and are comfortable with how the process works before moving forward. 

    What Is Your Debt-To-Income Ratio?

    Your debt-to-income ratio is another major factor that directly impacts your ability to qualify for lending products. To calculate your debt-to-income ratio, add all your monthly debt amounts and divide them by your gross monthly income. For instance, if you have a monthly income of $2,000 and a debt of $500, your DTI-ratio is 25%.

    It’s always a good idea to keep your DTI ratio below 40% to keep yourself free from financial stress. Try paying off any small debts before applying for an auto loan. This will lower your overall DTI-ratio as well as credit utilization, thus increasing your chances of approval.

    Would You Be Able To Put A Sizeable Down Payment?

    Paying a sizeable down payment can increase the chances of getting a car loan, even if you’re unemployed. When you pay a large down payment, the total amount you need to borrow will be smaller. A smaller loan amount means less risk for the lender. 

    Another benefit of paying a large amount upfront is that it helps avoid going upside-down on the loan. Usually, new cars lose around 20% to 25% of their total value within the first year due to depreciation. You’ll be able to avoid offset costs and hold positive equity in your car. This grants you the flexibility to trade in or sell your vehicle. 

    Subprime Lenders And BHPH Dealers Are Your Best Options

    If a steady job isn’t your main source of income and you’re struggling with bad credit, you’ll have to opt to work with an in-house lender. These lending institutions are known as buy-here-pay-here dealerships. As long as you can make the loan payments, these establishments won’t be too concerned over your employment status. If you’re planning to purchase a car from a BHPH lender, your selection of models will be limited to the ones they have available. 

    Subprime lenders work best for people with low credit scores. They have minimal eligibility requirements and it’s easier to get approval. However, in either case, you’ll have to pay a high rate of interest.

    Bottom Line

    If you have alternative sources of income and meet other requirements set forth by the lender, you can get an auto loan without a job. However, the process won’t always be easy. Consider alternatives like bringing in a cosigner before you settle for a loan at higher rates.