In the United States, 93 percent of Americans have at least one vehicle. Americans have been so car-dependent that the United States exceeded Europe in terms of car dependency. And that’s probably the reason why car dealership companies are rampant in the United States. In fact, cars have for many years been an important element in the industrial ecosystem in the United States.
Cars cost money to buy so if you are unemployed yet dependent on a car you may be thinking, “how to get a car loan without proof of income?” Is it possible to get a car loan even if you’re currently unemployed? Are there opportunities available for people without stable sources of income? Owning a car could make it easier for you to get or keep a job.
Car Loan With No Job but a Cosigner
Lenders get very cautious when they hear words like “unemployed” or “ no job”. Well, you can’t blame them for thinking that way as it represents a higher risk to them for getting returns on their loans. However, you can still get a car loan even if you’re unemployed if you have a credit-worthy cosigner as the lender can have another party to go to should you default on the payment of your loan.
For lenders, income is a form of security for them. As long as you earn income, they have some assurance that you have the means to pay the loan installments. But, income is not the only factor to consider. A cosigner with stable income and high credit score can help you in securing a car loan even without a job.
If the lender is confident with the added assurance you present to them, they can grant you the car loan even if you’re unemployed.
Here are some pros and cons of having a car loan with no job but with a cosigner:
Pros of Having a Cosigner
- You secure the loan. For lenders, an unemployed debtor is a high-risk debtor, However, having a cosigner with a stable income and/or good credit history will likely secure you the loan which would otherwise be unavailable. However, even with a cosigner, this still poses a higher risk to the lender. So as a rule in finance, a higher risk requires a higher return. In this type of loan, you should expect higher interest rates.
- You have more loan options. Only a few financial institutions grant these types of loans. And during the application, you’ll realize that being unemployed makes lenders hesitant and more cautious. That’s why it’ll be harder for you to get a car loan if you’re unemployed. And even when you can there will be offsetting factors such as higher interest rates. But with a cosigner, lenders will most likely more favorably consider your loan even if you have no income. Cosigners with good credit ratings can increase the chances of a loan approval.
Cons of Having a Cosigner
- You obtain the loan with the cosigner. An unemployed person with no other income source or cash flow would very likely require a cosigner to get the loan. The cosigner secures the loan in favor of the lender, and he must be privy to the details of the loan agreement because he’s responsible to pay the loan amount if the principal debtor can’t pay. So if you don’t want to involve other people in your financial obligations, a cosigner is not an ideal choice to begin with.
- You burden someone.Being a cosigner entails risks. In case the principal debtor fails to pay the loan, the cosigner will have no choice but to pay it. If you select a friend or relative as a cosigner, you’re passing a burden to them, which could impair your relationship if things get out of hand.
Getting a Car Loan Now? Learn the Essentials of Auto Financing First
Car loans (also called auto loans) are particular types of loans extended by a financial institution to purchase a car. But how does that differ from a personal loan? The difference lies in the purpose of the loan.
In a personal loan, the purpose can be for anything unless there’s a specific type of loan available. But in a car loan, the lender uses the car as a security to the loan. In other words, lenders have the right to repossess your car if you can’t pay the loan, especially if this happens repeatedly.
In the succeeding sections, you’ll learn the important elements of a car loan. Read them to understand how they work when you apply for a car loan.
1. Down Payment
In every car loan, there will always be a down payment. You can call the down payment as initial cash out. It is always stated as a percentage of the car’s purchase price. The amount of down payment can affect your monthly amortization, including the interest cost.
A higher down payment would result in smaller monthly payments and interest costs. If you set a high down payment, it’ll be easier for you to pay off the loan as you owe less. But, higher down payments are not entirely advantageous. You still need to assess if your current financial situation allows you to afford paying a large sum of cash upfront.
When you make monthly payments to the lender, you call that the car loan amortization. In financial terms, amortization is the process of paying the debt over the loan period. Your monthly amortization reduces the loan balance incrementally.
The monthly amortization consists of two elements, the interest portion, and the principal portion. For every amortization payment, not all of the amount is deducted to pay off the principal. You still have to deduct interest cost from the amortization payment, and the remainder goes to the principal amount.
3. Interest and Loan Term
The interest rate and loan term are interrelated since computing interest involves a time element. When you get a car loan, the interest rate and loan term determine how costly the loan is for the life of the loan. Risky loans often have high interest rates. With regard to loan terms, longer loan terms always yield higher interest costs as it will take you more payments for a longer period to completely pay off your loan.
It is important to find the right interest rate and loan term, so that you can comfortably pay off your car loan without encountering financial difficulties.
4. Terms and Conditions
Aside from the financial aspect of the loan, you also need to know its terms and conditions (TOCs). The TOCs are the agreed upon terms between you and the creditor. In the TOCs, you’ll find payment deadlines, car repossessions, penalties, and many more. If you’re particular about car repossessions, look what the TOC says about that.
However, your loan agreement may not be overly stringent about this particular matter. Skipping one or two payments would not immediately result in repossession. Instead, you may pay a penalty fee or be subjected to penalty interest.
6. Car Loan Calculator
There are a lot of computations involved in computing your monthly amortization for the car loan. But, you can use an online car loan calculator to estimate your car loan amortization. However, banks and financial institutions prepare their own amortization schedules. So any differences in amounts may be due to changes in rates or amounts.
Kinds of Car Loans
Cars loans differ in nature and terms. Choosing the best car loan can make your life easier. So before you find out how to get a car loan without a job, you should first understand what kind of loan is best for your financial situation.
Secured Auto Loans
A secured car loan is a loan that puts your car as collateral. Nowadays, banks and financial institutions offer this type of loan because it reduces the risk of non-payment and increases the chances of recoverability. Secured loans offer lower interest rates due to the reduced risk to the lender. Aside from lower rates, you can borrow higher amounts with a secured loan.
In a repossession, banks or financial institutions will send someone to repossess your car. But, the creditor won’t sell your car immediately. It is still your right as a debtor to know your options on how to reinstate your loan.
Unsecured Auto Loans
Unlike a secured loan which requires collateral, unsecured loans don’t need one. Instead, creditors use your credit history to assess the level of risk in extending credit to you. But, here’s the catch. Unsecured loans are less common, and if there is one, it’s hard to get or will inevitably mean higher interest rates. Creditors find it hard to give loans without collateral since there’s no recourse if the debtor can’t pay. So if someone’s willing to provide you with an unsecured car loan, consider taking it only after carefully examining the loan terms.
Overall, an unsecured loan is for the creditworthy only. So if you have no job with bad credit standing, you’re virtually immediately disqualified for this loan.
No Income Verification Loan
No income-no verified assets (NINA) loan or no income-verified assets (NIVA) loan apply for unemployed individuals. In this type of loan, the creditor doesn’t require you to present any proof of income as a requirement for the loan. They also won’t conduct verification steps similar to what banks normally do.
Institutions That Offer No Income Verification Loans
Steps in Getting a No Income Verification Car Loan
Getting a car loan means following established processes for processing paperwork and negotiation with the creditor. Here are some steps to guide you in the overall process.
1. Prepare Necessary Documents
Banks and financial institutions require different types of documents for car loans. It’s best if you visit a local bank and ask for a list of required documents. But, here are the common requirements that they might ask from you. Get these prepared beforehand to make the application process go smoothly.
- Identification cards
- Proof of residency
- Government-issued clearances
- Tax returns
- Credit history
2. Check Your Eligibility for the Loan
Before they give you a loan, the creditor would like to ensure you’re qualified. This process is called pre-qualification. The results of pre-qualification will depend on the documents you provided to the creditor. But, creditors won’t verify your income during pre-qualification.
If you passed pre-qualification, you could proceed to pre-approval if you wish to continue the loan.
3. Complete the Pre-approval Process
Under the pre-approval process, the creditor will dig deeper. First, you’ll be asked to fill up an application form. If you pass the pre-approval process, you should decide if you want to continue the loan.
4. Choose Which Loan Company Has the Best Offer
If you have several pre-approved loans, you can choose which has the best offer. You can compare the initial interest rate and loan terms. Choose the one that benefits you and not necessarily the cheaper choice. Benefits like lower monthly amortizations, relaxed collection methods and large grace periods are some of the things that can influence your choice.
Beware of These Things When Applying for Car Loans
There are certain gotchas in car loan applications that you should avoid. If you’re not careful in doing sufficient research before embarking on the loan process and not reading the loan terms carefully, you may fall victim to these things:
Seeing an advertisement that says “low interest and no collateral loans” looks enticing. Still, be aware that lending offers which seem too good to be true often come from predatory lenders.
These predatory lenders often charge punitive interest rates and impose high fees on their debtors. They often use “low interest offers” to lure the unwary to take up loans that may prove to be expensive and messy in the long run compared to more reputable lenders.
Differential Interest Rates
Unethical lending companies often use interest rates to gain undue advantage from you. They’ll charge high rates in case you skipped payments. So when agreeing to the terms of the loan, make sure you understand how interest rates change.
Spiraling into Debt
Considering that you’re unemployed, you may have a hard time coping with heavy financial obligations. As a result, you may seek another creditor to loan you money and use it to pay off another loan. If the cycle continues, you’ll eventually get trapped into a debt spiral. So, be careful with your debt decisions.
If you can’t pay your secured loan, banks will repossess your vehicle. They might tow your vehicle or disable it. Repossession can be tragic because you’ll lose your car, and you can only take it back if you settle your overdue balances. To know more about vehicle repossession, check out this website.
Getting a car loan without income and a cosigner can be a complicated process. It involves finding the right lending companies that will grant you an auto loan in spite of this, as well as ensuring you have thought through carefully how you will pay your recurring installments throughout the loan tenure. We have shown there are different avenues for getting a loan, even if you’re unemployed. But as the saying goes “there is no free lunch” so you should always remember that there are risks and cautions in these types of loans. So always practice diligence and care before signing the loan agreement.