If you’re in the process of buying a car with low income, you are in luck. We are going to show you what steps you need to take when trying to get your car loan approved, don’t worry, it won’t be overly technical.
Taking a Closer Look at Your Credit Score
Lenders want to know how responsible you are with your money, and they have no way of knowing how you manage your finances aside from looking at your credit score.
There are two major credit reporting agencies in Canada; most car loan providers will use both of these platforms.
Your credit score has to be in the 720 or higher range to access the best car loans. You are able to get approved for a car loan if your credit score is over 600, but the interest rates are not going to be as competitive.
Since you are using non-traditional sources of income, it will require an additional level of underwriting, so you should work on your credit score to get it as high as possible. There is no major secret when it comes to raising your credit score; just keep your total credit utilization rate to less than 30% and always pay your debts on time.
Assess the Situation With a Budget
First, check your household budget to see how the reduction in income will impact you. If things will be tight but you’ll still end up with money left over each month, life will be more frugal than before but you’ll be fine.
If you’re going to end up in the red and don’t have enough for your current lifestyle, you have some changes to make. Your budget will show you exactly where you are, how much you’ll have left over or will be short.
Take Care of the Essentials First
Take a long look at your budget and make sure all life’s essentials are being paid. Your rent or mortgage, bills, taxes and any other essential outgoings you might have.
Factor your car loan with a low income into the essentials list. You’ll need to keep paying it unless you’re in a position to refinance or sell the car. Now check to see how much you’ll have left over once that has all been paid.
Depending on how much you have left after paying the essentials, you may need to make simple savings or more substantial ones.
Simple savings could be cutting down on eating out, reducing impulse purchases, not having a vacation this year, shopping around for groceries or gas and simple cutbacks that don’t impact your lifestyle too much. Keep cutting until you can cover all your monthly expenses with a little left over.
Cut Back Further if Required
If simple savings aren’t enough, you’re going to have to get tougher with those cuts.
Identify how much you need to save each month and put together an emergency budget to see you through. Cut all extra expenses like coffee, lunches, breakfast, eating out and make your own food and drink.
Cut as much entertainment as you can handle and binge Netflix for a couple of months. Reduce income wherever you can to minimize outgoings as much as humanly possible.
It should only be for a while, until work picks up again or you get another job.
How Unconventional are Your Income Sources?
When you fill out the application for a car loan, some of the questions will be about where you get your income. For example, are you self-employed or work as a freelancer?
If you are working primarily as a freelancer, you could provide links to your online profile and copies of contracts you have in place with your clients.
How your clients pay you is also something that lenders will want to look at; if you have clients paying you with Bitcoin or some other type of cryptocurrencies, you need to show the paper trail of how those funds entered your bank account.
Lenders follow the rule of “trust but verify” when they are underwriting a car loan. So, you need to show bank account entries for all of the transactions you are doing and have done for the last year.
This is a lot to ask, but you are asking the lender for a significant amount of cash, so you can appreciate their need for documentation.
Where to Buy a Car with Low Income
This is not something you should attempt to do on your own; reach out to dealerships in your area and let them help you find a suitable lender.
These dealerships have seen it all, so they will know how to prepare your loan application and which lenders are going to approve your car loan.
After the dealership has reviewed all of the details of your car loan, they will also give advice on how to repair your credit if you are having any issues.
So, when you go through a dealership, you will have complete peace of mind knowing you are going to be getting the most competitive terms based on your unique profile.
Click here to get approved for your next car loan online today! we have a team of credit specialists ready to help you easily buy a car in Hamilton with Low Income and will work with you no matter your credit score.