We all know that without verifiable proof of income, getting a car loan at low-interest rates or even getting approved in the first instance can prove to be a herculean task. Thus, if you plan to buy a car without proof of income, lenders will be hesitant to give you a car loan since they see you as a big risk. Fortunately, however, there are various ways to get around this setback, which this guide covers to help ease your car buying process.
How to buy a car without proof of income
As promised earlier, this is a step-by-step guide to help even first-time buyers get the best deal with no proof of income.
Step 1: Prove you can pay for the car
a. Provide tax returns
In the absence of pay stubs, you can produce a copy of your tax returns for the past 2 years instead. Follow this IRS guide to request a copy of your previous tax return.
This is because tax returns provide detailed and accurate information about you, they can be used as proof of income for your loan, and they can also be used to forecast your annual earnings in the future.
Also remember that if you can’t produce tax returns, you’re essentially a high credit risk for the lender. This translates to higher interest rates for you.
b. Provide bank statements
Although bank statements cannot actually prove how you earn your income, they can be used to prove that you do have a regular income and how much your income is.
c. Bring a report of your invoices and contracts
A list of invoices and contracts you have worked on for the past 12 months and some future contracts you haven’t even invoiced yet can actually serve as proof of income, even if you have no job currently.
Although lenders don’t usually rely on invoices and contracts alone as proof of income, using these documents to supplement your bank statements and tax returns will actually prove you’re not a high credit risk for the lender.
Step 2: Prove your residence
a. Provide your last mortgage statement
Owning your own home and being able to provide your last mortgage statement can serve as proof that you still live at that residential address (proof of residence).
However, the mortgage must be in your name for the mortgage statement to have your name in it. If you don’t have a mortgage statement, then check out the next number on this list.
b. Bring your canceled rent checks
If you don’t own a mortgage, but you rent, canceled rent checks plus receipts signed by your landlord can be used as proof of residence.
However, if you live with others (such as friends, relatives, co-eds, and the like) and you pay rent to them instead of the landlord, then you can ask them to sign a statement that you live with them at that address.
c. Provide your utility bills
In the absence of mortgage statements or canceled rent checks, a utility bill in your name (water bills, electricity bills, phone bills, and co) at your residential address can serve as proof of residence.
However, if your bills are in another person’s name, then you must produce business mail such as credit statements, bank statements, and others in your name at that residential address.
One word of caution—don’t use junk mail since they are not addressed to you specifically. They cannot be used as proof of residence.
d. Bring a library card application
In some instances, a library card application can be used as proof of residence. This is because library card applications require proof of residence in the first instance.
However, not all lenders consider it valid proof of residence. So you might need to bring other documents such as utility bills or business mail along with you.
Step 3: Prove you are creditworthy
a. Improve your credit score
The fact is irrespective of the fact that you have proof of income, lenders will consider your credit score during the loan approval process.
In the absence of proof of income, a very good credit score will considerably improve your chances of approval.
Here are a few ways you can improve your credit score:
- Pay off 80% of your debts – or work out a proper repayment plan with your creditors
- Make sure all your bills are paid on time
- Get a credit card – or ask to be an authorized user on someone else’s credit card
- A short-term loan from your bank or local credit union is a good way to improve your score- Don’t spend it, simply put the money in an interest-yielding account and repay the loan before it’s due.
- Avoid companies that promise to improve, erase your bad credit or create an entirely new credit identity for you as they are usually scams.
- Run away from bad-credit loans (sub-prime). These loans are targeted at people with bad-credit ratings at unfavorable terms and conditions.
b. Come prepared with a healthy down payment
No proof of income, then be prepared to make a large down payment in cash (way over the usual 10%).
However, there are some upsides to this:
A significant down payment in cash means the amount you have to finance is reduced, and it’s also an assurance for the lender that you won’t be “upside down” on your loan.
c. Prepare your collateral
You can use any assets such as a piece of property or vehicle as collateral for the loan.
However, you need to have proof of ownership of these items and also know that the lender will take out a lien on your collateral. This essentially gives the lender the legal right to keep the collateral if you default on your payments.
Here’s a list of a few items you can use as collateral:
- Real estate deeds
- Cash account and investment statements
- Machinery and equipment receipts
- Valuables and collectibles
- Vehicle titles and others
d. Bring a co-signer
Bringing a co-signer with an excellent credit score, verifiable proof of income, and proof of residence is a surefire way to get your car loan approved. Meanwhile, you could still do without a co-signer.
This is because a worthy co-signer essentially guarantees that in case you fail to make your payments on time, they agree to make the payment for you.
But you need to watch out for this one, defaulting in your repayments can damage your relationship with your co-signer since they are essentially liable for any faults you make.
Step 4: Select a suitable lender for your auto loan
a. Be cautious with dealer financing and thoroughly examine the financing paperwork
It’s common for car dealers to try to mislead buyers into thinking they won’t qualify for a bank loan and con them into financing.
Thus, you need to apply a great deal of caution and read between the lines if at all you will go with the option of dealer financing.
This is because dealer financing usually comes at higher interest rates due to their ability to extend these loans to as much as 72 months in order to reduce your monthly payments.
Not forgetting some ‘unfriendly’ terms and conditions that could mean you could still be making payments for a car you no longer own.
b. Check banks and credit unions
Local banks and credit unions can offer you better loan options since they understand your financial situation better and will be more than willing to work with you.
Credit unions in particular often offer an easier loan approval process and lower interest rates since they are usually community-oriented as opposed to dealerships.
c. Avoid predatory loans and lenders
Predatory loans are extremely easy to get because they do not require proof of income or credit worthiness in the first place.
However, predatory loans come with very high-interest rates, charges, and fees. Not forgetting that predatory lenders are known to employ crude or fraudulent loan recovery methods.
Here are a few ways you can recognize predatory loans and lenders from afar:
- They tell you it’s fine to put false information on your loan application
- They tell you even with no credit or bad credit, they will give you a loan
- They usually come with add-ons that only inflate the loan amount instead of adding value. Examples of these add-ons are theft deterrents, insurance, rust-proofing and the like.
Can I fake proof of income for a car loan?
Yes, you can fake proof of income for a car loan. But, only if you’re willing to deal with the consequences involved when you get caught. Note that knowingly providing false information on your loan application fraudulent and a crime—Bankrate.
Faking proof of income is simply viewed as telling a lie on your loan application! And that is tantamount to committing fraud.
Here are a few consequences of faking proof of income:
- Your loan application will be rejected
- The vehicle will be repossessed
- Any future loan applications you submit will be thoroughly scrutinized before they are even given a thought!
- In extreme cases jail time.
Note: Even if your proof of income is valid and you have a high credit score, overstating your income more than the actual amount actually carries the same penalties as faking a proof of income.
So you need to be careful!
Frequently Asked Questions
What is the credit score needed for a car loan?
Your chances of getting your auto loan approved increase if you have Tier 1 credit, or a 720+ score, and you include accurate information in your loan application.
Can you use alimony to get a car loan as a disabled?
Disabled persons can use alimony as proof of income, but it often depends on how high their credit score is. The best way to know if you qualify is to talk to your local bank or credit union as they are in the best position to guide you on this.
Read also: Hide your car! Criminals switch VINs
This article has proven that there are other ways to buy a car without proof of income. However, those methods require a bit of time, documentation, and cautiousness to scale through.
Always remember that the easiest way to buy a car without proof of income is to pay in cash. Whichever way you choose to go, you must keep in mind that the falsification of any details in your loan application carries severe penalties.