Getting approved for a car loan becomes more difficult if you have bad credit, don’t have a job, and your only income comes from benefits like Social Security or disability. Last month, a consumer asked us about this:
“I want to apply but I don’t have a job, I’m disabled and on disability, so how can I apply on a social security fixed income.”
If that person has good or excellent credit, qualifying shouldn’t be a problem if they meet a lender’s requirements. However, if their credit is in bad shape, it will be much harder to get approved, and we can explain why.
Here has Auto Express Credit, we help people with credit problems find car financing, so we’re going to assume that person doesn’t have good credit. Keep that in mind as we explain how your ability to get car loan approval is affected by not having a job and only live on a fixed income.
Fixed income car loans and bad credit
Subprime lenders – those who work with consumers with poor credit – are willing to consider applicants who are on a fixed income, but you still need to be able to meet all the requirements.
For starters, that means meeting the minimum monthly income requirement. Most subprime lenders generally require you to earn between $1,500 and $2,000 per month (before taxes are taken out). You can use fixed income sources, such as Social Security, to meet this requirement.
You will also need to meet other income requirements, which include variable debt-to-income ratio (DTI) and payment-to-income ratio (PTI) standards. Again, lenders will consider fixed income sources when calculating these ratios.
While a fixed income will help meet these requirements, it becomes a problem thanks to another limitation of subprime lenders. They need at least some of your income to be seizable, and Social Security benefits and other non-taxable sources of fixed income cannot be seized.
If you fall behind or stop repaying a loan (a situation more likely to happen with a bad credit loan), a lender must be able to seize some of your income to cover their losses. Therefore, it is a problem when someone with bad credit has no garnishable income.
When Social Security is your only source of income
So, is it possible for someone with bad credit whose only source of income is not garnishable (like the person who asked the question) to be approved for a car loan? The answer will almost always be no. Unless…
- You earn some sort of additional W2 or 1099 income that can be seized. You don’t have to meet income requirements with just this source. It can be combined with your fixed income to meet lender requirements.
- You have a co-signer with a seizable source of income. If you have a co-signer with seizable income, they must also meet the lender’s income, DTI and PTI ratio requirements themselves.
If either is not an option, you can try a reseller buy here pay here (BHPH). These dealerships finance in-house, so they generally don’t care whether your income is solely from disability, Social Security, or other benefits.
If you use a BHPH, try to make sure you choose one that reports your loan and payments positively to the credit bureaus. This way, your auto loan can help improve your credit and put you in a much better position the next time you need to finance a vehicle.
If you have bad credit and all of your income comes from non-seizable benefits like Social Security, it can be very difficult to get approved for a car loan without the help of a co-signer. So the car buyer who asked the question would greatly improve their chances of success if they lined one up before applying.
Speaking of improving your chances of getting approved for a bad car loan, Auto Express Credit wants to help you do just that. Our fast, free service connects consumers with dealers who specialize in helping people with bad credit.
Don’t let your credit prevent you from being financed. Take the first step by completing our car loan application form today.