Car loan financing is not too dissimilar from other types of financing. Prospective lenders want to be able to verify a customer's ability and willingness to repay a loan. This is most often verified with income documents and a credit report. A credit report will show previous borrowing history, perhaps on a previous car loan, and income documents prove the disposable income a customer has to put toward a car payment. If you can only prove your income with a bank statement, you'll have an uphill battle to car financing, though it is possible.
Request your credit report before finding a suitable vehicle. Before a lender will consider any type of nonconventional income verification, he will want some more security, namely strong credit. Visit AnnualCreditReport.com for a free copy. You can also pay for a FICO score, a three-digit number between 300 and 850. This score shows lenders where you land on the credit spectrum. Scores above 700 are excellent.
Collect at least six consecutive bank statements from the same account. If you've changed banks, provide six bank records total in order from each bank. Lenders may approve income from bank statements, but they want to see consistency of income.
Lay out all bank statements in front of you. Take an average of deposits for each month. Do not include any transfers, because lenders will not consider these income. Then determine an average of all deposits for six months. This is roughly your gross monthly income.
Find the car you wish to purchase. It is important to remember that you do not need to use the financing programs available to you at the dealership or used-car dealer. You can and will likely need to seek outside loan financing.
Search for nontraditional auto lenders. Most traditional lenders, including local banks and credit unions, will not finance a car loan unless solid proof of income is presented. These institutions want to see documents such as pay stubs or W-2s. Instead, try finance companies such as CitiFinancial Auto or Capital One Auto.
Fill out several auto loan applications. Give all loan officers your bank statements with your deposit averages. This will help speed the approval process. The lenders will pull their own credit reports, so you need not worry about giving your copy away.
Collect all auto-financing offers. You will likely be faced with higher interest rates and fees simply because your loan is riskier in the eyes of the lender. You must decide if the benefits of the car outweigh the costs of the loan.
- Loan.com: The Auto Loan Approval Process
- Loan.com: Risks of Lying on a Stated Income Loan Application
- Loan.com: Who Benefits from a Stated Income Loan?
- USA.gov. "Credit Reports and Scores." Accessed March 19, 2020.
- Consumer Financial Protection Bureau. "What Is a Credit Score?" Accessed March 19, 2020.
- Fannie Mae. "B3-6-02: Debt-to-Income Ratios (08/07/2019)." Accessed March 19, 2020.
- Consumer Financial Protection Bureau. "Create a Loan Application Packet." Accessed March 19, 2020.
- Office of the Comptroller. "Interagency Statement on Meeting the Credit Needs of Creditworthy Small Business Borrowers." Accessed March 19, 2020.
- Consumer Financial Protection Bureau. "Does a Credit Inquiry Have a Different Impact on My Score if I’m Approved or Denied?" Accessed March 19, 2020.
- Consumer Financial Protection Bureau. "What Is a Debt-to-Income Ratio? Why Is the 43% Debt-to-Income Ratio Important?" Accessed March 19, 2020.
- Federal Trade Commission. "Credit Scores." Accessed March 19, 2020.
- Experian. "What to Do If Your Loan Is Denied." Accessed March 19, 2020.
Based in Eugene, Ore., Duncan Jenkins has been writing finance-related articles since 2008. His specialties include personal finance advice, mortgage/equity loans and credit management. Jenkins obtained his bachelor's degree in English from Clark University.