Unless you have been trapped in a bomb shelter for the past year and a half, you have probably noticed all the lenders that have been forced to merge with other lenders, or go out of business completely. This was not a phenomenon exclusive to the mortgage industry. The auto finance industry was hit just as hard. To make it worse, cars almost never go up in value over the long run, and houses usually do go up in value…eventually.
Why did the lenders get in trouble?
The simple answer here is they lent too much money too easily. If a car is worth $10,000 an auto lender decides how much they are willing to lend on that vehicle based on the strength of the applicant. For one person, the bank might lend $5,000 (requiring half down); for another person, the auto lender may be willing to lend up to $15,000 (150% loan to value) which may be because of tax, negative equity in a trade-in, or because the customer wanted to include an extended warranty or GAP coverage on the loan. What happened in the home loan and auto loan industries was almost identical. The lenders decided to lend too much money to too many people that they shouldn’t have.
The sad thing is that it is not that individual lender’s fault. Having been in the auto industry for the better part of a decade, I can say that if one lender did not give a consumer enough loan, another one was willing to. The lenders were required (by whomever they reported to) to originate a certain number of loans each month. So, when it got down to the end of the month and they were behind goal, they lent more freely to secure more loan originations.
What does that have to do with proving income?
Plenty. When the lenders were being too agressive in loan to value, they were also being very lax in requiring proof of income. Guess which loans have the highest default rates in both auto loans and home loans…really, guess. You would be right if you said the loans where people did not have to prove their income. If you have PERFECT CREDIT (750+ scores, and had significant loans before) you are probably not going to have to prove your income for an auto loan, unless you are buying something that requires a very high monthly payment. However, the people with MEDIOCRE credit, (620-700) will almost always need to prove their income. Below that? Count on showing proof of income. You might as well bring your pay stubs to the dealer with you.
What if I am self employed or have tough to prove income?
We can help. Most self employed people tend to write off as much income as possible to avoid paying Uncle Sam. That is between you, your accountant, and the IRS. We do not car about it until it is time to prove income. At WashingtonAutoCredit.com, we have lenders that will look at your bank statements and add up your monthly deposits to prove income. If your credit is not great, it may be the only way to prove your income.
What if I do not have a bank account?
Get one. 🙂 If you show 2 months of decent deposits, we can use that as proof of income. If you cannot get a bank account, or just do not want to get one try to get us cancelled check copies from the people that pay you every month. If you do not get paid with checks (only cash) we have another option to help. You will need to put a very sizable down payment on a vehicle. Each one of the vehicles in stock will require a different down payment, so the best way to find out is to call us and setup an appointment after you have applied for an auto loan at WashingtonAutoCredit.com.