Paying cash for a new car has advantages, particularly if you’re self-employed or a seasonal worker. You won’t need to verify your income if you purchase with cash. If you don’t have cash on hand for a new-car purchase, you usually need verification as the finance company wants proof that you can eat and cover the monthly car payment. If your income varies by the month or year, you can verify your income through business records, the Internal Revenue Service or online sources.
Acceptable Documents for Verification
If you’re a freelancer or self-employed, you can verify your income by providing last year’s federal income tax return and include Schedule C and other supplemental forms that show income. Schedule C is your profit and loss statement you provide to the Internal Revenue Service. Bank records may also be acceptable to the lender. Your lender may ask you for your most recent bank statement with your application or may obtain verification of your income through other sources.
You can apply for financing at your local bank before you shop for a new car or you can wait until you select a vehicle and finance with the dealer. If verifying your income is a potential problem, you may have less difficulty using your local bank for financing. A long-term relationship with the bank may clear your way for a new car loan as the bank can review your income through deposits over the years.
Complete IRS Verification
Internal Revenue Service Form 4506-T is a request for a transcript of your tax return. Complete and sign this form for the lender, who faxes it to the IRS. The IRS produces a transcript of your federal income tax return, Form W-2 and Form 1099 within two days of the request under the Income Verification Express Service. The lender accesses a mailbox on the IRS site to review your verification information. The IRS started charging a $2 fee for this service in 2011.
Loans Without Verification
A large down payment may substitute for verification of income. You probably know that a new car loses value as soon as you drive it off the lot. The lender or dealer will need at least that value lost to finance the car without verification of your income. Plan to pay 20 percent down or more to reduce the lender’s risk and increase your chances of getting the loan. A vehicle to trade in on a new car counts as a down payment for financing. Even if you don’t have a large down payment, you may get a loan without verification of your income by combining a trade-in vehicle with a down payment.
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