Getting a car loan doesn't have to be a nightmare, even with bad credit.

Auto Loans for Unemployed People – Can You Finance a Car Without a Job?

last updated November 21, 2013 by

There are two main categories of people who have difficulty financing cars and submitting paperwork to back up earnings claims.  The first category, self-employed individuals, can generally use tax documents such as the 1099-K to demonstrate their income and qualify for a loan.  The second category, unemployed people, has trouble showing banks that they will be able to pay the loan back.  There are a few tips for unemployed people to help qualify for an auto loan – vital to buying a car and eventually getting a job in this competitive economy.

Higher Down Payments

One surefire way to secure an auto loan is to agree to a higher down payment as part of the terms of purchase.  A high down payment shows the lender that you are serious about buying a car, and it also shows that you have the financial stability/acumen necessary to save up a great deal of money.  Most importantly, a high down payment is a signal to lenders that they will be able to recover the entire value of their loan in the event that the borrower defaults.  Even if your car depreciates in value, the amount that you paid as a down payment can be used to cover the shortfall between the purchase price of the car and the amount that the lender can get for the car at auction.

Higher Interest Rates

Some loan companies might be willing to take a chance on an unemployed borrower, but with the caveat of a higher interest rate.  Interest rates vary across loan portfolios, with high interest rates typically being assigned to loans with higher risk (like loans to unemployed people.)  A high interest rate means that you will pay more for your loan over time, but it isn’t the end of the world.  After you get a job and build up a satisfying work history, you should be able to renegotiate the terms of your loan, or you can refinance your loan through another lender that will offer you a lower interest rate.

Avoiding Lending Scams

Just because you are unemployed doesn’t mean you have to be desperate for an auto-loan.  Make sure to shop around, and don’t confine your search to local car dealerships and banks.  You will have far better luck finding favorable loan terms from an online lender like Complete Auto Loans, and you should never consider signing an agreement such as a “buy here pay here” loan from a disreputable dealer.  Many car dealers prey on the unemployed, assuming that you will be desperate enough to agree to borderline illegal loan sharking in order to get a car – it is far better to ride the bus than to sacrifice your entire financial future to a shady company.