Traveling around the United States can be challenging without access to reliable transportation. You must have a steady income to finance the purchase of a vehicle. But what if you are currently unemployed? Is it possible to finance a car with no job? Keep reading to learn about your financial options.
Type of Car Insurance You Need for a Car Loan
Before you purchase a new or used car, you will need car insurance. You will be unable to drive your new vehicle until you provide proof of insurance. Every state has minimum insurance requirements, but you will typically need full coverage insurance for a new car.
A financed car is not legally yours until you pay the debt off, which means the car has to have complete financial protection. Full coverage insurance is the priciest option because it includes liability, collision, and comprehensive insurance. A lender may not require full coverage insurance if you buy a used car. Call ahead and ask the dealership or seller what type of insurance you need for a new or used vehicle.
You may hear 100/300/100 in reference to full coverage insurance. This number is equal to the coverage amount, as shown below:
- $100,000 for injury coverage
- $300,000 for injury coverage (per accident)
- $100,000 for property damage
Full coverage insurance costs vary based on your driving record, car, state of residence, and insurance provider. However, the average rate for full coverage car insurance is $1,758 a year. This amount would be $146.50 every month. Plenty of discounts are available online, so you can save money by getting car insurance on your own instead of at the dealership.
You will need to have full coverage insurance for the duration of the loan term. If you downgrade your insurance, you will violate your finance contract. Violations are subject to fines and a civil lawsuit. It’s essential to consider car insurance costs when buying a new or used car.
Can I Get a Car Loan Without Steady Income?
To get approval for a car loan, most lenders expect borrowers to have good credit scores and reliable income sources. However, there are options available if you are currently without a job. You may still be able to make a car purchase to commute long distances quickly.
Apply for an Auto Loan With a Cosigner
If you do not currently have a monthly income, you could still qualify for a car loan if you use a cosigner. A cosigner shares full responsibility to pay back the car loan if you do not, which lowers the lending risk for creditors. Anyone with good credit can be a cosigner, which means you can ask a close friend or family member.
A cosigner with a good credit score can also help you obtain better loan terms. If someone is willing to co-sign a loan, you may get a better interest rate thanks to their strong credit history. However, being a cosigner is risky. Ensure you do not miss auto loan payments, or your cosigner’s credit score will also decrease.
Use a Large Down Payment
You will need to provide a down payment to get an auto loan. Most lenders expect consumers to offer 20% of the purchase price of a new vehicle. If you can provide a larger down payment, you could get a car loan without a job! Providing a lender with more money upfront lowers the lending risk and may work in your favor.
If you cannot afford to provide that much money upfront, consider buying a used car. Used cars can run efficiently and cost less than a brand new manufactured vehicle. The average down payment for used cars is 10% of the purchase price. Coming up with a larger down payment on a used car is one way to get an auto loan when unemployed.
Show Proof of Other Income Sources
If you do not have a job right now, you may still qualify for an auto loan with alternative sources of income. You could get loan approval if you are self-employed, receive government assistance, or receive a steady income from other sources.
Ask your prospective lender about acceptable sources of income and what documents you need to provide. For example, you could show proof of your monthly income through invoices or bank statements. You may still be able to pay back a loan despite not being actively employed.
Use Your Good Credit Score
You may have a good chance of getting car loan approval without proof of income if you have an excellent credit score on your credit report. High credit scores prove to a lender that you are financially responsible and pay your debts on time. It takes a long time to get a good credit score. Not to mention, a portfolio of different credit products which also shows a lender a long history of managing good debt instead of bad debt. Credit scores over 740 points can help borrowers obtain lower interest rates to save money. A lower interest rate can help you get lower monthly payments, improving your financial situation.
Use Alternative Loans
If you can’t get a car loan without proof of employment, you could raise your approval odds by applying for alternative loans. If you want to finance the purchase of a new or used car, you could use a personal loan instead of a car loan!
Personal loans offer eligible consumers a large payout that they repay monthly over a specified period of time. These lenders are known to have flexible qualification requirements. There are personal loans for people with bad credit and no job.
The Bottom Line
If you recently lost your job, you may struggle to get approval for car loans. The good news is that you can raise your approval odds through various methods. You can use a cosigner, provide a larger down payment, or advocate your good credit. Even if you do not have good credit, know that buying a new car with bad credit is still possible!
Getting a car loan offer is exciting, but don’t settle for the first lender that qualifies you with alternative sources of income. Take your time comparing lenders and loan offers to find the best repayment plan for your finances.
References:
How Much of a Down Payment Should You Make on a Car?
How to Buy a Car When You Don’t Have Proof of Income
Do I need full coverage on a financed car?