About 10% of the country is currently unemployed. Since there are so many people out of work, it is becoming common for people to be out of work for several months until they get their next job. If you have recently gone back to work and you are now ready to buy a car, there are some things you need to know about buying a vehicle after a job gap.

It can be hard finding an auto loan with a large job gap.

The most important thing to remember is that you need to fully disclose your job gap to the dealer where you are asking for financing. Why? Won’t your application look better if you forget to mention the job gap? Of course. However, the lender is going to find out anyway.

As finance companies have been forced to tighten their auto lending guidelines, they have gone to greater lengths to make sure that their applications are complete, all information is fully disclosed, and that all information is verifiable. If you have been at your job less than 1 year, there is a very good chance that any lender giving you an auto loan will be contacting your previous employer to verify your hire and termination dates.

Why do auto lenders care about previous employment?

You are not relying on your previous employment to pay your new car payment, right? So, in some ways, it does not make sense that an auto lender should care about your old job. However, there are a few common ideas that lenders subscribe to regarding employment history (for good or bad):

1. Job bouncers are not usually good payers.

We all know job bouncers, they stay at their job 1-6 months, then get bored and quit or get fired. Then they find a new job, and do it all over again. From a credit and lending prospective, people that “job bounce” often do not repay loans as agreed on the contract terms. Lenders often put certain guidelines into their underwriting requirements to avoid job bouncers. For example, one popular policy requires that the applicant have no more than 2 employers over the last 12 months, and no more 3 employers over last 2 years.

2. Large employment gaps can be a red flag to bigger problems.

If you have been out of work for several months, there is a good chance that you are falling behind on some of your bills with the intention of catching back up when you get back to work. It can take several more months to actually catch back up. If you cannot catch up, the credit cards, utility companies, and other bills that have not been getting paid may end up taking you to collections, obtain a judgment, and even garnish your wages. Any new lender wants to make sure all the dust has settled with your old bills before they give you a new auto loan.

In addition, the new auto loan lender wants to make sure you are going to stay at this job for a while. How often have you heard of someone taking a job just because it is the only company that would hire them? It happens all the time. How often have you heard that the person that took that job ended up HATING that job and quit? That happens all the time too. When people have been out of work, they are more desperate to take a job that ordinarily they wouldn’t consider.  If a lender were to give you an auto loan, and you quit a month later, it might be tough for you to keep making the auto loan payments.

Lenders will often put policies in their underwriting guidelines that stipulate that the borrower cannot have had more than 30 days of unemployment withing the last 12 months.

Why Full Disclosure is Best:

Often times, we can convince a lender to overlook employment gaps, job bouncing, or other issues with employment if there is a good reason for it and we get it cleared ahead of time with the auto lender. If the lender finds out while the loan is being verified in funding, or during a customer interview, the lender will usually kill the loan. Banks hate surprises.

You do not want to be the person that has to bring the car back to the dealership because your loan falls apart in funding. If you have to wait at your job an extra month or two, or if it takes a little bit more money down to buy a car right now, it is better to know it sooner rather than later. It is embarrassing to tell all your friends and family that your new car is back at the dealer because you couldn’t get financed for an auto loan.