To get a car loan
when you’re unemployed, you’ll need a credit score higher than 660, a secondary source of income, a cosigner, to pay off other debts if possible, and to make a significant down payment on the car, if you can. You’ll also want to ensure your loan term is no longer than 60 months with as low an interest rate as possible. The car insurance
broker and comparison shopping app Jerry
is here to tell you everything you need to know about getting a car loan if you’re unemployed. We’ll walk you through how to get a loan while you’re out of a job, what criteria you may need to meet, how to compare lenders, and explain how your credit score can help you land a loan while unemployed.
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How to get a car loan when you’re unemployed
If you can’t pay for a car with cold hard cash, you’ll need a loan (like most people). If you’re unemployed and you need a car, the process of getting a loan will be more difficult, but that doesn’t mean it will be impossible.
First, you’ll need to head to a bank, credit union, or the car dealership where you intend to buy a car and talk to them about a loan. With a car loan, you’ll be able to pay off the car’s full value over a number of years.
Here’s what to expect when you take out a car loan while you’re working or if you’re unemployed:
You’ll need to make a down payment—a bigger down payment is better, if possible
Choose a loan term (shorter is better), and decide on an interest rate with your lender
Pay off the loan principal (the amount you must pay back) in monthly installments over the term of the loan
Of course, the type of loan you’re able to secure will depend on factors beyond your employment status, including your credit rating, the type of car you are buying, and your loan term.
MORE: How to get a cosigner for a bad credit car loan
Other sources of income
If you’re unemployed, that doesn’t necessarily mean there’s no money coming in. You could have income from various sources, which can help you secure a loan even if you’re currently out of a job. These secondary sources of income could include:
If you have any of these secondary sources of income, list them on your application. A lender needs to know if you have other sources of income when weighing your loan application.
Credit rating
Having a good credit rating (ideally higher than 660) will go a long way in convincing a lender you are a good borrower and that you service your debts reliably, even if you are currently out of work.
You can check your credit score to get an idea of if you’ll be eligible for a good interest rate
. If your credit score is better than average, you might qualify for a rate of around 3%, which is significantly better than the interest rate for the average American, which is around 5%. Co-signer
If you have someone, such as a spouse, parent, or trusted family member, willing to co-sign the car loan with you while you're unemployed, that can help your chances of approval.
A co-signer gives a lender the assurance that your loan payments will be covered—either by you or by your co-signer—in case you default on your debt.
If you take on a co-signer, you are responsible for both your credit rating and the co-signer’s, so make sure you can make your monthly payments.
Key Takeaway If you default on your loan with a co-signer, this will negatively impact both your credit and the co-signer’s credit score.
Compare lenders
Do your due diligence and look around to see what offers you can get for a car loan if you’re unemployed. You don’t want to take the first loan offered to you, because you might be able to find a better rate elsewhere—compare at least three offers before making your pick.
Be sure to look at traditional banks and credit unions for loans, and look for a lender who offers a low interest rate. Take a moment to investigate their approval rating and customer satisfaction reviews as well.
If neither a bank nor a credit union will lend to you (which is a distinct possibility), you can check out buy-here pay-here dealerships. But beware—they might charge much higher interest rates.
Choose a loan term
If you find a lender, negotiate your loan term—look for a contract that runs between 60 and 72 months, and try to get the shortest loan time possible, which will come with lower interest rates over the course of the loan.
A longer-term loan with lower monthly payments may be appealing, but a longer loan will bring higher interest rates, meaning your loan will be more expensive over the long haul.
Pay off other debts
If you have smaller debts that you can pay off, do so, as this will make you more appealing in the eyes of a lender.
As a rule of thumb, you want to keep debt-to-income ratio low—preferably around 25% in order to not feel cash-strapped.
If you can, pay off any smaller loans before taking on a car loan—this will give you more flexibility to handle an incoming car loan, especially if you are still out of work.
Get pre-approved if possible
Getting pre-approved for a car loan will give you a good idea of what interest rates and loan terms you are likely to qualify for.
Be sure to ask if the pre approval process will result in a hard or soft credit check—a hard inquiry will temporarily lower your credit score, but a soft inquiry will not.
Having a pre-approved loan in your pocket can help when approaching lenders—it can give them some confidence that, even if you’re unemployed, you still managed to qualify for a pre-approved loan. This will likely make you into a better-looking candidate in a lender’s eyes.
Make a bigger down payment if you can
If you can make a larger down payment, this will lower the amount of money you’ll need to borrow. This will be attractive to lenders, despite your unemployment.
Being able to make a more significant down payment will give potential lenders confidence that you have the money to pay back the loan, and will be able to meet your monthly loan obligations, even if you are currently jobless.
Can you get a car loan for a used car while unemployed?
You can get a car loan for a used car if you’re unemployed. However, it might be more difficult. You will have to make the same case you would with a new car—you’ll need to have some income despite no job and have good credit, a co-signer lined up, carry minimal debts, and be open to making a bigger down payment.
Also, beware of the following when seeking a car loan for a used car:
Some lenders might not lend out money for cars below a certain price
Used car loans typically come with higher interest rates (around 8%)
Some lenders won’t approve a loan for a car older than a certain age
You might have better luck finding a loan for a used car by applying at a credit union
How to find affordable car insurance while unemployed
Financing your car—even if you’re unemployed—is just the first step to hitting the road in either a new or used car. You’ll need car insurance
to protect your vehicle—Jerry
is the best place anywhere to find a great and affordable policy. Sign-up takes just 45 seconds, and then our super app gets to work by comparing quotes from more than 50 top companies to ensure you get the best rate possible. Once you pick your new policy, Jerry signs you up and helps cancel your old policy. Jerry will also automatically search for better rates on your behalf before every renewal period.
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