Do Lenders Check Income for an Auto Loan?

Why Does Income Matter for Auto Loans?

Income is a key data point for lenders, since it is one of the factors that most influences your ability to repay a loan. Income comes into play at several points during a car loan application:

1. Initially, it's important to make sure the car you want fits in your budget, and that you can afford the likely monthly car payment on your current income.
2. Once you decide to apply for a loan, if you opt for auto loan prequalification or preapproval, you'll need to submit your income to the lender. Prequalification is a preliminary application for credit, which means you may only need to provide estimated income. Preapproval, on the other hand, is more involved and leads to a more accurate offer, requiring you to provide income verified by documents such as pay stubs. Typically, if you're 21 or over, you can list government benefits, retirement income and other earnings that don't come from work as income on your application.
3. Finally, after getting prequalified or preapproved by a lender, you'll know the maximum amount you qualify to borrow. Once you've chosen a car to buy, you'll finalize the loan with the lender, which will necessitate a last round of income verification

Having strong income can make each stage of the process go smoother—and it can also save you money. It may help you qualify for a lower interest rate or even make you a good candidate for promotional deals. With a good credit score and high income, the car dealership could, for example, offer you a low or 0% promotional annual percentage rate (APR) on particular cars. That said, it's still possible to qualify for an auto loan without a high income (more on this below).

What Else Do You Need to Qualify for an Auto Loan?

In addition to income, lenders will also review information such as your:

• Credit score: Lenders will check your credit reports and scores to determine whether you're eligible for a loan, and if so, what interest rate to offer. The higher your credit score, the more likely you are to qualify for a loan. A good credit score of at least 670 will likely get you a range of loan options at lower rates, which can save you money.
• Debt-to-income ratio: Lenders will look at your monthly debt payments and how they compare to your income. Debt-to-income ratio, or DTI, shows how much of your pretax monthly income goes toward debt, such as credit card or loan repayment. In general, auto lenders prefer that applicants have a DTI of 50% or less.
• Employment information: On your application, you'll share information about your employment history, including where you currently work, your previous jobs and how long you've worked at each. Lenders ask these questions to assess the stability of your income (and the likelihood you'll be able to repay your loan).
• Housing information: Lenders may ask about your current housing payment to help assess how much car you can afford.
• Amount to finance: When filling out your application, you'll include the price of the car you want to buy plus an estimate of other costs, such as taxes, minus the down payment you'll make.

How to Verify Your Income for an Auto Loan

When you're asked to verify your income for an auto loan, lenders typically accept these documents as evidence:

• Current pay stubs from work
• Current bank statements
• W-2 tax statements if you're an employee
• 1099 tax statements if you're an independent contractor or freelancer
• Tax returns from the most recent two years if you're self-employed
• Statements showing you receive other forms of income, such as unemployment, retirement or other government benefits; spousal support; passive income from a rental property you own; or investment income

Can You Get an Auto Loan With Low Income?

It is possible to get a car loan with minimal income. But since lenders will want to see evidence that you can afford the payment, you'll need to show you're creditworthy in alternative ways. That might include:

• Making a larger down payment
• Applying with a cosigner with excellent credit and strong income
• Improving your credit so that it's as high as possible when you apply
• Paying down debt to boost your credit and lower your DTI

You could also look into getting a car loan from a credit union. In many cases, credit unions—with their not-for-profit, member-owned structure and mandate to help members—offer lower rates and more accessible credit requirements on car loans. They may be more willing to work with you if you're unemployed or earn a low income.

Frequently Asked Questions

The Bottom Line

Checking income is a crucial component of the auto loan application process. But having no or low income, or a nontraditional employment situation like a freelance business, doesn't have to disqualify you. Work on building your credit, first by checking your credit score through a free service like Experian's, so that it can bolster your application no matter your income.