Do You Need Proof of Income to Buy a Car?

Last Updated on November 27, 2021 by Joe Regan

Usually, when financing a car, the dealership or lender requires some documents. So, do you need proof of income to buy a car? Proving your income is not always the case depending on some factors, including your credit score.

do you need proof of income to buy a car

If the lender is subprime and you have bad credit, you may need proof of income to finance a car. The lender wants to be sure that you can repay the loan comfortably.

Sometimes, your most recent pay stub can be your proof of income, depending on your type of work. If you operate independently or are self-employed, the lender can request documents such as your bank statement to help in verifying your income.

What is Verification of Income When Financing a Car?

Income verification when financing a car is simply a process a lender uses to know you can repay the loan. it also reveals whether you are a high credit risk or not. A typical income verification process does not take long to complete.

For example, most lenders can use an e-Verify system to find out if you earn the amount of money you claim to earn or are an employee in a place you listed during the application.

If you are self-employed or an independent contractor, the lender may request your multiple years of tax returns. They use it to verify your income status or employment. Sometimes, you may have to submit you’re a copy or copies of your bank statements for the lender to verify if you receive the claimed 1099 (non-employment income).

Do You Need Proof of Income to Buy a Car?

You need proof of income to finance a car. The lender wants to be sure that you are not a credit risk before they can approve your loan application, or at least know how to treat you.

You also want to be able to prove your income as stated on your credit application for an auto loan.

Each lender has unique criteria that help them to stipulate proof of income so they can find your loan.

A credit score is commonly used to determine if proof of income is needed. A lender has its threshold. However, most lenders do not require proof of income when a borrower scores 600+.

Sometimes, inconsistencies during underwriting can lead to a stipulation for proof of income.

For instance, suppose there are two dealerships, each submits one customer to the same bank for financing and both applications have different types of income and amounts listed. The underwriter can disapprove the loan application.

However, if the underwriter approves the loan, they will stipulate proof of income, and may also review it before you can finance the car.

The stipulation of proof of income can also be caused by variables including a loan to value or payment to income.

Some lenders, typically in subprime lending, will require you to provide not just your proof of income but also your proof of insurance and proof of residence. It is okay for them to request this information as it is part of the requirements in their lending program.

In some cases, your lender subscribing to the work number can get your auto loan application approved and income verified. This can also be the case if the credit report provider of the lender or dealer augments loan applications with this invaluable data whenever they are available.

Do not attempt to doctor or manipulate the income data you report to get loan approval. Some borrowers, for instance, make fake bank statements to apply for auto loans. Lenders are taking more sophisticated measures to verify income. Besides, it is a crime to fake your income report, and it is not worth it to face federal bank fraud charges.

Do You Need to Prove Income for Car Loan?

A lender will not ask for your proof of income if you have good credit. However, a subprime lender will use your income to know your loan qualification if your credit is not good.

Each lender has its minimum income requirement. A lender wants to see you making from $1,500 monthly before taxes. The document you have to submit to the lender depends on what you do or how you generate your income.

For example, suppose you are a W-2 employee working full time. In this case, you have to submit a copy of your most recent pay stub, typically the past 30 days. A copy of the pay stub can be computer-generated.

However, a 1099 employee or an independent contractor will have to submit a copy or copies of their most recent tax returns. This can be from the past 2-3 years.

Irrespective of your type of employment, most lenders prefer it when you maintain a job for the past 6 months at least. They may also request your work history for the past 3 years to be sure you can pay off the loan.

Sometimes, a lender can request your bank statement. However, a bank statement may not be the only document required by the lender as proof of income even though it summarizes your financial transactions. A subprime auto loan will not accept only your bank statement as proof of income.

Final Thoughts

Whether you will be asked to submit your proof of income or not depends on your lender. A subprime lender will always ask for your proof of income, they feel you may have challenges maintaining your loan repayment schedule.

Besides, a subprime borrower is historically considered as someone whose FICO score is below 600. The lender considers you a high risk and wants to be certain you will not have repayment difficulties.

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