How to Get a Car Loan When You Only Have Unearned Income

When you apply for a car loan, the bank or finance company wants a guarantee that you can repay the loan. The money you use to make your loan payments doesn’t necessarily have to come from job earnings. A lender may consider your loan application if you can show that you receive regular income from investments, annuities, alimony, pensions, Social Security benefits or other sources that aren't related to employment. A lender will want to see proof that your unearned income will continue for the length of the loan.

Improve Your Credit Score

Improve your credit score before applying for a loan. Your credit score is a three-digit number calculated using information in your credit reports. It's designed to predict your credit risk. To improve your score, pay down your debts, particularly your credit card balances, and don't apply for any new credit cards. Keeping your accounts in good standing over time usually has a positive impact on your credit score.

Budget for a Car Payment

Estimate how much of a car payment you can afford for your income. A good rule of thumb is that generally, you shouldn’t budget more than 15 percent of your monthly after-tax income for all your car payments combined. Besides the cost of your monthly loan payment, keep in mind that you’ll have other expenses such as auto insurance, maintenance and repair, as well as those trips to the gas pump.

The Down Payment

Save money for a down payment, especially if you won’t be trading in another vehicle. Putting more money down when you buy a car can get you a lower interest rate and reduce your monthly payments. If you do trade in your old vehicle, know what it’s worth before negotiating the trade-in value. Avoid discussing trade until you’ve settled on the price you’ll be paying for your new car.

Shop Lenders

Check out the rates that different lenders offer. You can start with local lenders, but look into the rates of online lenders and credit unions as well. To get the lowest interest rates from online lenders, you usually have to apply for the loan online and sign up for the lender's automated loan payment program. If you don't like the idea of applying for a loan online, credit unions generally offer interest rates 1 or 2 percent lower than banks or finance companies.

Prove Income

Provide the lender with proof of your unearned income, depending on your particular circumstance and what the lender requires. If you receive Social Security income, provide copies of bank statements showing direct deposits of your Social Security checks, a copy of Form SSA-1099, which is your yearly Social Security benefit statement, or request a proof of income letter from the Social Security Administration.

If you receive alimony payments, you generally must provide the lender with a copy of your divorce decree or separation agreement. You’ll need to provide earnings statements if you receive dividend or interest income, or show rent checks or copies of your bank statements if you own investment property that generates a rental income.

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