What can be used as proof of income?
If your credit is good to excellent, there’s a good chance a lender will take your word for the income you claim, but when you have bad credit, you must show proof of income. The type of documentation needed to prove your income depends on the source. Different types of jobs require different forms of proof, just like unearned income. If you find that you need to show proof of income, read on to find out what documents you need to bring to the dealership with you.
Proving your income as an employee
If you are a W-2 employee, the most common form of employment in the United States, your employer levies various taxes on your salary (income, social security, health insurance, etc.). When you are an employee, you usually receive a paycheck from your employer on a weekly, bi-weekly, or monthly schedule.
These checks usually come with a pay stub that lists your income and deductions for the current pay period as well as running totals for the year. This is what you need to bring to prove your income when you take out a bad credit auto loan. Lenders typically request your most recent monthly check stubs, although the specific number required varies by lender.
If you receive handwritten checks or if your check stubs don’t have up-to-date income information, you usually can’t use them. In these cases, you should contact your employer to obtain either a computer-generated form that includes this information or a letter from your employer stating your earnings, as additional verification.
Proof of income for the self-employed
As a self-employed person, you don’t get a W-2 form for tax purposes. If you are an independent contractor and receive income from one or more sources, you get a Form 1099 from each source of income. If you have your own business and work for yourself, you will not receive any type of form. Since you don’t pay income taxes on a regular basis like a W-2 employee, the IRS requires you to pay taxes on a quarterly basis.
For borrowers like this, lenders typically require at least two to three years of tax returns. On these returns, you use a Schedule C to report your annual income. Lenders use your net income after business deductions as gross income to qualify for a car loan. In some cases, your lender may also ask for bank statements to show that the income from your employment sources is actually going into your accounts. However, bank statements alone are not sufficient to provide proof of income.
Can Fixed Income Securities Be Used?
When you no longer have a regular income and you only have social security or disability as a source of income, you might run into some issues regarding your income for a subprime lender. For starters, these lenders typically require a minimum pre-tax income of $ 1,500 to $ 2,000 per month, which in some cases can be difficult with this type of income. Additionally, these lenders also require that at least a portion of your income be garnishable, which SSIs, SSDs, and other taxable income sources typically don’t.
To prove your income in this case, you must provide your Social Security award letter, but you still cannot qualify for a car loan due to the fact that this income is not garnishable. But, you may be able to compensate for this problem with a co-signer. If your co-signer has excellent credit and meets all of the other lender’s requirements, you should be able to qualify.
The bottom line
If you have your paperwork ready and you need a vehicle, start your auto finance journey here with Auto Express Credit. We work with a coast to coast network of special finance dealers who have lenders ready to help people in many types of credit situations. You can start the process now by completing our easy car loan application form today!