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Posted 12/14/2022 in Financial Assistance

Can I get a Car Loan While on Unemployment?


Can I get a Car Loan While on Unemployment?

Being without a job can cause major stress. In today’s world, many people have experienced unemployment due to the pandemic or rocky job situations. Unemployment can cause a lot of financial strains and leave you wondering how you may be able to acquire needed items like a car. Due to your unemployment status, you may doubt that any lender would approve you for a car loan. While it may be tricky, you can still get approved for a car loan while on unemployment. By observing what lenders are looking for, understanding your credit, gathering other sources of income, and taking steps to increase your chances, a car loan may be within reach while unemployed. 

 

What Do Lenders Look For?

Just like with any loan, lenders will assess your eligibility and either approve or deny your requested loan amount. When purchasing a car, lenders will view your credit report, your income, and your debt-to-income ratio. These factors determine if you are a responsible borrower. If you are unemployed, lenders may consider you a high-risk borrower. This may result in denial or higher interest rates for an approved loan. When considering an application, lenders want to know that you will pay the loan back on time. Income plays a huge factor in lenders determining if you can make your payments. Without an income, you may be stuck with higher rates causing you to spend more on the loan overtime. Approval without an income is not impossible! With other positive factors to your financial situation and loan application, you may still be approved for the car loan you are requesting. 

 

Credit Score & Income Sources

Credit scores can be an intimidating. Many don’t understand their credit scores and how it can help or hurt their chances of getting approved for a loan. A credit score acts as a type of predictor that lenders will view to determine how likely you are to pay your loan back. Your credit history is based off of your past loans, your past payments, and how you use credit that is extended to you. How you use a credit card and other loans will be viewable on your credit report. Lenders view this report to determine if they want to extend you the money needed to make a purchase and how likely you are to pay it back on time. While each lender has different credit and income requirements, you will most likely need a fair to great credit score number. Some lenders even offer assistance to those whose credit falls below the required number. You may still be able to qualify for a car loan while unemployed if you have positive credit history and a number within the required range of your preferred lender. 

You may also be able to get approved for a car loan while unemployed by gathering up other sources of income. These sources of income may be steams such as social security, rental properties, Veteran’s benefits, investments, or alimony. Anywhere you gain income of some form may be helpful to you in applying for a car loan. Since lenders take your income into heavy consideration when approving your loan, proving money coming into your bank account will improve your chances of being approved. As well, depending on your lender, they may even accept proof of inheritance, money from family members, or a pending job opportunity. Gather your income from all sources and present it to your lender when applying for a car loan. 

 

How to Increase Your Chances of Approval

While it is not impossible to receive a car loan while on unemployment, there are some steps that you can take to improve your chances of approval with a loan company or car dealership. Borrowing money from a lender is a big deal and can have both positive and negative impacts on your financial situation. By implementing these steps, you will have a better chance of not only getting approved for a car loan but having a better overall financial standing. 

Credit score is a huge player in lenders determining your eligibility for a loan. A poor credit score can mean denial or higher interest rates if you are approved. Understanding your score will not only help you make wise financial decisions but help you to see what lenders may be basing their decision off of. To improve your credit score, keep your debt-to-income ratio down, limit inquires on your account, and be sure to make on time payments on credit cards or other loans that exist in your name. 

Another way to improve your chances of receiving a car loan while on unemployment is to find a co-signer. A co-signer is usually required when the borrower doesn’t have sufficient credit or income to support the loan’s amount. A co-signer would then also take on the weight of the loan. Therefore, their income, credit score, and debt-to-income ratio would also be considered when applying for the loan. If you opt to include a co-signer, make sure that their financial situation is positive to help your approval chances. 

Lastly, increasing your down payment will assist in getting you approved for a car loan. A higher down payment means that there would be less that you would need to borrow from the lender. This also helps to show a good financial standing and will lower your monthly payment on the car. Work on saving for a decent down payment before applying for a loan to improve your approval chances.


Closing

No need to fret about your unemployment status when applying for a car loan. There are steps that you can take to show lenders that you are a responsible borrower, even without a job. Focus on your credit score, your debt-to-income ratio, and being a responsible borrower in other areas. Your positive borrowing history is key. Also start gathering other sources of income. Even if it is not a steady job, every little bit helps to prove money is coming your way. Approval while on unemployment is not impossible. With some determination to keeping a positive financial life, you may be able to get approved for a car loan without a job.


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