Can You Get a Car Loan Without a Job?
If you want to purchase a car but don’t have a job, can you get a car loan? Here’s what’s required to get a loan and some alternatives to consider.
Read time
6 minutes
Date
05.12.2023
Share
According to the Bureau of Labor Statistics, the unemployment rate in the first quarter of 2023 is 2.6%, with 283,000 people without jobs. 2.6% might sound reasonable, but not if you're one of the jobless.
Even though the COVID-19 pandemic brought the world to a standstill, some industries, like the service industry, have never recovered. Over 2.5 million workers lost income in the first quarter of 2022. Some in these industries haven't fully recovered.
If you fall into the unemployed or under-employed category, you know getting reliable transportation is a big key to getting a better or more permanent job.
Can you get a car loan without a job?
Although challenging, securing a car loan without traditional employment is possible by providing alternative income sources or additional documentation.
What is required to get a car loan?
Lenders use the following criteria to approve a borrower for a loan because they want assurance that monthly payments will be paid consistently over the loan term. One of the most important aspects is creditworthiness, which helps demonstrate past financial responsibility. If you were eligible for the American Rescue Plan, your credit might not have been too damaged while waiting for income and you may have some money in the bank.
- Proof of employment - Lenders often want borrowers with stable jobs and steady income.
- Creditworthiness - A good credit score demonstrates your ability and willingness to repay debts on time. Here’s how credit scores affect interest rates and how you can get a free credit report.
- Demonstrated ability to repay the loan - Your debt-to-income (DTI) ratio will determine your ability to pay. Your car payment needs to be under 15% for a new car and 10% for a used car of your net monthly income.
- Down payment - Borrowers typically need to provide a down payment of 10% and 20% of the car's cost. However, sometimes, lenders may accept lower sums depending on credit score and job security.
- Vehicle information – The make, model, year and mileage of the vehicle you intend to buy can affect whether a lender will give you a loan. High mileage, older vehicles may not be worth the loan amount, which means lenders see no resale value in the car.
8 alternative income sources
Other than traditional employment, some lenders may accept alternative sources of income when considering an auto loan application to demonstrate the borrower's ability to repay. Just note that you need documentation to support your credit application.
- Social Security benefits - Lenders may consider Social Security benefits an acceptable income form. To verify these payments, provide copies of your benefit statement or deposit records from your bank account.
- Pension or retirement income - If you're retired and receiving regular pension or retirement fund disbursements, this can be proof of steady income. Documentation such as bank statements showing consistent deposits or official letters from the organization managing your funds will need to be provided.
- Rental property revenue - If you own rental properties generating monthly income, some lenders will consider this. Provide documents like lease agreements and bank statements reflecting rental deposits to demonstrate stable earnings from these investments.
- Disability payments – If you're disabled, you may receive a monthly benefit payment from SSDI (Social Security Disability Insurance) and/or SSI (Social Security Insurance). Your disability payments may be temporary or permanent based on your injury. Give a copy of your paperwork to the lender that shows the terms of your disability.
- Alimony or child support payments – Alimony and child support payments are court-ordered. These awards end at a specific time, so bring your divorce paperwork showing the terms to the lender. If you already receive payments, get deposit histories showing consistent payments.
- Side hustles - If you drive for companies like Uber or Lyft, submit recent pay stubs or earnings reports to show consistent cash flow.
- Freelance work - Freelancers should compile invoices, contracts, and payment receipts demonstrating their ongoing client relationships and project-based earnings.
- eCommerce sales - Online sellers can use profit-and-loss statements and transaction histories from platforms like eBay, Amazon, and Etsy to illustrate their business performance over time. Since these incomes fluctuate, you may need to show previous years' tax returns to show an average income.
How to get a car loan if you're unemployed
If you experienced unemployment due to the COVID-19 pandemic, you know how small those unemployment checks are compared to your income. While each state has criteria for calculating the amount you'll receive, they are designed to be small to encourage people to return to work. However, the employment landscape has changed, so you may be cobbling together a few jobs to make the same money as one or still struggling to find suitable employment. A better job might be in the next town, and you need transportation to get there. Here are some ways you can get a car loan if you’re unemployed:
1. Find a co-signer
A co-signer agrees to take on the responsibility of your car loan should you fail to make payments. This person typically has good credit and a steady income. If you default on the loan, both credit scores will be negatively affected.
2. Specialized lenders and subprime auto loans
Some lenders specialize in providing subprime auto loans, which cater specifically to borrowers with poor or limited credit history. These loans often come with higher interest rates due to the increased risk involved for the lender. However, they can provide an opportunity for those without a job or stable income source.
3. Buy-here-pay-here dealerships
Buy-Here-Pay-Here (BHPH) dealerships offer financing directly through their dealership or finance companies rather than relying on banks or credit unions. BHPH dealers may not require proof of employment if other requirements, such as down payment and residence stability, are met. However, be cautious of these dealerships' high-interest rates and potentially unfavorable loan terms.
4. Credit union
If you're a credit union member, talk with a loan officer. Credit unions operate differently than banks and are more willing to help a member with a loan since they are local and community-based. Often, a board of credit union members makes decisions on loans, and these rates can be slightly lower than a traditional bank.
5. Put down a large down payment
If you can put more money down than the traditional 20%, you have a better chance of securing the loan. Better yet, paying cash for a car may be an option.
An alternative to car buying
If you’re looking for a car, but don’t think getting a loan during unemployment is the best option, consider exploring a car subscription. Car subscriptions offer terms of just six to 12 months and monthly fees include registration, insurance, maintenance and roadside assistance. With a FINN car subscription, you can choose from a variety of brands and one of the latest car models, providing you access to a car without tying yourself down to a long-term loan.
Final thoughts
While it's not impossible to get a car loan while you're unemployed, you need to be willing to work with a lender to give them a reason to loan you money. Alternatively, you could explore other options like leasing, renting or subscribing instead of buying. Or browse cars at FINN.