Millions of Americans have gone through difficult months during the coronavirus pandemic – some worse than others. Although things have opened or are reopening in many areas, there are still many people who have not returned to work. What does this mean for those who are still on leave but need a car?
Income Requirements and Auto Loans
While unemployment checks can help those who have been on leave or laid off keep food on the table, this income won’t help you if you apply for credit. This includes mortgages, auto loans, and most other types of credit. Indeed, unemployment benefits are a temporary source of income.
In order to benefit from a car loan, lenders require you to prove income that is likely to last the life of your loan. This income should usually come from a single source and should generally be around $ 1,500 to $ 2,500 per month before taxes.
While you can meet the required amount with your current unemployment benefits, they may run out long before your auto loan ends.
Temporary income and auto loans
While being put on leave and fired means different things, perhaps in terms of work sponsored health insurance and other benefits, they mean the same for lenders. That you are put on leave, laid off or simply unemployed, lenders are unlikely to approve you for a car loan.
When you apply for an auto loan, the loan term is usually a few years, measured in months. It’s common to see auto loan terms between 60 and 84 months – longer than unemployment checks likely last. As a rule, you are only allowed to receive unemployment benefit for around 26 weeks, which is around six months.
The government has extended some benefits and offered additional cash to those affected by the COVID-19 pandemic, but that is still not enough for lenders to approve you for a car loan. Your source of income must last for the life of the loan, and unemployment checks will not last for five consecutive years.
Need a vehicle on leave
If you really need a vehicle, it might be worth saving as much as possible on your unemployment checks, if you collect (without neglecting your bills, of course), and wait once to buy a car. . you go back to work. The money you saved can then be used as a down payment on an auto loan.
Plus, you can work on your credit score and continue to pay off all of your current bills and loans. While your employment status does not affect your credit, your payment history is the most important part of a credit score.
If you make a few late payments, or even miss some, these derogatory notes can stay on your credit reports for up to seven years. It may harm your chances of obtaining a car loan or prevent you from benefiting from the best rates or offers.
Another option to consider is to enlist your spouse or life partner as a co-borrower. Co-borrowers can usually combine their income, both are responsible for paying off the car loan, and both get ownership rights to the vehicle.
When you have a co-borrower, your sources of income are combined, but not your credit scores. While your temporary source of income won’t help you get approved for a loan, if your spouse or partner is still working, you may be able to increase your chances of getting a car loan.
Start preparing for your next car loan
While applying for a car loan while on leave probably won’t work right now, you can still prepare for a loan by saving, monitoring your credit reports, and evaluating your options, such as going with a co-borrower.
We can also help you Auto Express Credit. We have a nationwide network of dealers who work with borrowers in all types of credit situations. Once you’re ready to get in touch with a reseller, complete our car loan application form, and we’ll find one in your area that has the loan options you need.