If you’re currently unemployed and need a car, you might be wondering if you can take out a loan. The answer is yes, having a job is not a requirement to get an auto loan.
However, it’s usually more difficult to get approved if you aren’t working. There are some workarounds, like making a bigger down payment and having good credit, that can help you get approved for a loan when you’re unemployed.
Can You Get a Car Loan If You’re Unemployed?
Yes, you can get a car loan if you’re currently unemployed. Some auto lenders will approve your loan without current employment, assuming you meet all their other requirements. In addition to your employment history, here are some other factors that lenders typically consider:
- Credit score
- Down payment
If you don’t have proof of income from a job, you’ll probably need to have an excellent credit score and make a sizable down payment to make up for it. Depending on your credit score and your employment history, you might also need someone to co-sign the loan with you.
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How to Get a Car Loan If You’re Unemployed
Getting a car loan when you’re unemployed can take some creative thinking. Here are a few ways to get a car loan without employment:
Find a Co-Signer
Getting a co-signer is one of the best ways to get an auto loan when you’re unemployed. The co-signer agrees to take over your loan payments if you default on the loan. Choose a co-signer with a high credit score and good debt-to-income ratio to improve your chances of being approved for an auto loan. You’ll also want to choose a co-signer with consistent income.
Check Your Credit Score before Applying
Having a good credit rating can help you get an auto loan without a job. If you have bad credit, consider waiting to apply until you’re employed or improve your score.
While some lenders offer car loans to individuals with bad credit, these loan terms usually come from subprime lenders and have high interest rates. You can check your credit score online for free or through a third-party provider such as Credit Karma.
Make a Bigger Down Payment
Putting more money down on your auto loan lowers the amount you owe, which can increase your chances of being approved. A big down payment shows the lender that you have the funds to make your monthly payments, even if it takes you a while to find employment. You can use an online loan calculator to see how various down payments will impact your interest rate and monthly payment.
Leverage Other Income Sources
Even if you’re not currently employed full-time, lenders will usually consider other types of income when you apply. This might include Social Security income, alimony support, investment dividends, interest, or income from a rental property. You can also provide proof of income through unemployment benefits.
Use Tax Returns
If you’re between jobs, you might be able to use last year’s tax returns as proof of income. Talk to your lender and see if this is an option. If you don’t have a copy of your latest tax return on hand, you can get a free copy through the IRS website, or the tax preparer you use can provide one.
Visit Your Local Credit Union
Credit unions typically have more relaxed loan requirements than traditional lenders. If you have an account with a credit union, find out if they offer car loans to unemployed borrowers.
A loan officer from the credit union can review your accounts to see if you have sufficient funds to cover the full loan amount. Credit unions also typically offer better loan terms, which can help you avoid high interest rates.
Pay Off Other Debts
Lenders consider your debt-to-income ratio when they review your loan application. This is the amount of money you make in comparison to the amount of money you owe. Ideally, you should aim for a debt-to-income ratio of 25% or less. When you pay down your credit card debt and other loans, your debt-to-income ratio improves, which also raises your credit score.
Refinance After You Get a New Job
If you take out an auto loan while you’re unemployed, you’ll probably pay a higher interest rate. But once you get a new job, you can refinance your loan to get better loan terms, like a lower interest rate and potentially a shorter loan term.
Compare Auto Lenders
Comparing lenders is always a good idea when shopping for an auto loan. Contact a few lenders and ask if they offer loans to unemployed individuals. If the answer is yes, find out what the requirements are and what documents you’ll need to provide.
Should You Get a Car Loan If You’re Unemployed?
It’s possible to get an auto loan when you’re unemployed, but it’s not always the best option. Without an income, making your loan payments can be difficult.
And if you default on your loan, there are consequences, including losing your vehicle. Before you get an auto loan, make sure you can pay the monthly amount without jeopardizing your other financial responsibilities.
Finance & Insurance Editor
Elizabeth Rivelli is a freelance writer with more than three years of experience covering personal finance and insurance. She has extensive knowledge of various insurance lines, including car insurance and property insurance. Her byline has appeared in dozens of online finance publications, like The Balance, Investopedia, Reviews.com, Forbes, and Bankrate.