Even a used car can deflate your wallet or bank account by thousands of dollars. When you don't have that kind of money immediately available, car loans can get you into the ride of your choice. Your employment status may, however, affect whether your loan application goes through.
Whether you need a job to get a car loan depends on the lender. Some lenders are willing to work with you even if you're unemployed. Others make employment a condition of financing, because a job translates into income that makes it more likely you'll pay off the debt. This doesn't mean you can't get a car loan if you're unemployed, but it does mean you'll have to shop around a little to find the right lender.
Your employment history is just one point a lender may use to approve your car loan application. They also look at your credit. If you aren't employed but have prime credit -- generally a score of at least 700 -- the lender will take your history of paying previous debts into account.
Like credit, your debt-to-income ratio is another piece of the loan-approval puzzle. This is the amount of debt you have divided by the amount of money you are bringing into your household. If you are unemployed but have few or no other debts, creditors view you more favorably than if other creditors, lenders and vendors already get a large percentage of your money. For this reason, the lower your debt-to-income ratio, the more likely it is you can get the auto loan you need.
Down Payments and Cosigners
Lenders may take you more seriously about the auto loan if you're able to make a down payment. The Carsdirect website indicates that some lenders require a down payment of at least 30 percent if you have no job. Getting a cosigner is another way to increase the odds of approval. In the event you default, the lender can go to the cosigner to get what you owe.
The Bottom Line
When applying for a car loan, your employment really isn't the issue. Your ability to repay the loan is. As long as you can demonstrate you are financially capable of meeting your debt obligations without a job, the lender likely will approve you. Approach the loan officer like an entrepreneur when you apply. This means going into the loan office with documentation that verifies your financial situation and a written repayment plan.
- CarsDirect: How to Get a Car Loan Without a Job; 2011
- 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.
Wanda Thibodeaux is a freelance writer and editor based in Eagan, Minn. She has been published in both print and Web publications and has written on everything from fly fishing to parenting. She currently works through her business website, Takingdictation.com, which functions globally and welcomes new clients.