Pay Stub: Verifying Income And Employment For Auto Loan

Presented by Paystrubmakr.com      By John Wolf and Tom Cullen CPA

World Health Organization

To prevent infection and to slow transmission of COVID-19, do the following:

• Wash your hands regularly with soap and water, or clean them with an alcohol-based hand rub.

• Maintain at least a 1-meter distance between you and people coughing or sneezing.

• Avoid touching your face.

• Cover your mouth and nose when coughing or sneezing.

• Stay home if you feel unwell.

• Refrain from smoking and other activities that weaken the lungs.

• Practice physical distancing by avoiding unnecessary travel and staying away from large groups of people.

• Coronavirus who

Tens of millions of Americans filed unemployment claims since the pandemic struck in mid-March, according to statistics from the U.S. Department of Labor. The number of new claims each week is far lower than the record highs seen in March and April, though the numbers in some segments, such as restaurants and travel, continue to be terrible.

Many car owners are finding it hard to make their car payments and avoid defaulting on their auto loans. Others may put off a car purchase or lease because of a tenuous job status that takes away confidence they’ll be able to make their payments on time. Coronavirus Pandemic: What Should I Do if I Can’t Make My Car Payment?

Whether you are buying a new car or applying for an auto loan for the first time, it’s essential to understand how automobile dealerships and lenders see you.  The things you can do to improve that image can help you prepare in advance of applying for auto loans so that you will be in a better position to get approved for a car loan with a lower interest rate and better terms. After all, you want your monthly auto loan payment to be the lowest it can possibly be.

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When and why do auto lenders verify your income and employment?

Your bank, credit union, car dealer, or finance company may want to substantiate both income and employment for marginal applications. Marginal applications have a combination of lower credit scores, higher purchase prices, or low down payments. They want to confirm whether your monthly earnings are sufficient to handle the increase in monthly payments. They may also need assurance if your earnings will continue throughout the length of the contract.

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Recognize what’s in store and set up the proper documentation. This increases your chances of buying the car you want, at a moderate interest rate.

• Income Verification for Auto loans

Banks, credit unions, car dealers, and finance companies sometimes verify earnings when evaluating an auto loan application. The purpose is to affirm that the measure of your future salary is adequate to cover your projected scheduled installments. Most lenders will cap the monthly payment for a car loan at 10 – 15% of the monthly salary.

However, there are 3 general guidelines that determine whether they will validate the amount of money you make.

1. Credit scores – Borrowers with very high credit scores (above 700) can often obtain a car loan without corroborating wages. Those with lower scores will need to offer verification that they can make the scheduled installments on time.
   

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2. Purchase price – Borrowers purchasing lower-priced new or used vehicles are more likely to qualify for financing without substantiating wages. Those purchasing models that are expensive will have to exhibit that they can deal with the larger monthly payments.

3. Down payment – Borrowers making very large down payments are also more qualified and do not need to demonstrate proof of earnings. The fact that they can spare a substantial total of cash provides sufficient evidence. Those making smaller or no down payment have lesser qualifications, need to compensate.

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If you fall into one or more of these high-risk factors be prepared for income verification. The automotive lender may request recent paystubs, tax returns, and other forms of paperwork. This kind of documentation relies upon how your household earns its money.

• Recent Paystubs

The automobile lender may request recent pay stubs in order to verify income if you work as a W2 employee. A W2 employee works the hours set by the employer under their control and direction. Collect at least the last three months of recent paychecks before applying.

• Tax Returns

The auto finance company may request copies of recent tax returns in order to verify income. Expect this if you work as an independent contractor, 1099’s employees, or you own your own business. An independent contractor sets his or her own hours and works outside the direct control of an employer.

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In this situation, they need to determine your net compensation after business expenses, so a 1099 statement by itself is deficient. They will need to see a copy of Schedule C business expenses.

You may need to complete IRS Form 4506-T (Request for Transcript of the tax return). The IRS then sends the tax return information specific to the lender for assessment.

• Other Documentation

Many applicants have other sources of earnings that can help them qualify for a larger monthly payment. The automotive lender will want to verify these supplemental income streams as well. Be prepared to present appropriate documentation if any of these apply to you.

• Social Security Income (SSI)
• Disability insurance
• Child support
• Alimony
• Public assistance

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