How Do Banks Verify Income For A Car Loan?
By Jaden Miller , September 18 2020
Do you want to know how do banks verify income for auto loans? When it comes to whether or not you will receive a car loan, many factors come into play. To make sure you understand these factors, we will be describing to you all the ways that banks use to decide whether or not to qualify any individual for a car loan.
By the end of this article, you will come to know the factors that come into play on the decision of issuing a car loan for both the individual and the bank. Get ready to become an expert on receiving car loans!
Your Credit Score & Paystubs
Your credit score is the biggest factor that comes into play when a bank decides to verify your income or not prior to giving you an auto loan. Thus, if you have poor credit, you should automatically expect to have to verify your income. One of the key ways a company verifies an individual’s income is through paystubs.
Paystubs are pieces of paper employers give employees as proof of payment. Most paystubs show the amount of money earned by an employee. Paystubs also show the amount of money taken out of an employee’s paycheck due to taxes, insurance costs, etc. The difference between paystubs and W-2 forms is that paystubs include non-taxable income in their final income statement while W-2 forms do not.
People get car loans all the time. They usually give proof of income through paystubs rather than W-2 forms when receiving a car loan. Credit scores usually range from 300 to 850. Thus, a good credit score is considered to be 670 or above. If your credit score is deemed. to be very poor or fair, you will definitely have to provide proof of income for a car loan.
Often times there is a requirement for how much income you need to receive to get a car loan. This is because the bank needs to know that you can make your monthly loan payments. In most cases, the required income value is around $1500 to $2000 a month before taxes. Consistently receiving at least this amount of money a month proves that you can make monthly payments and take care of yourself.
If you do have a good credit score, you probably will not have to provide proof of income.
The Price Of A Car
If the price of the car you are purchasing is expensive, then your lender will likely ask you to verify your income. In fact, most luxury cars require proof of income through pay stubs and other financial forms, regardless of credit score. That means that people with poor credit will likely not even get a chance to have a loan considered for approval to buy an expensive car.
Amount Of Money Paid In Down Payment
If you have a good credit score, your lender will likely not require you to make a down payment on your new car. Although no one requires you to, making a down payment on your new car will lower the amount of money you must pay on it each month. Making a down payment on your new car will also lower the interest rate on your auto loan. This will save you money in the long run.
If you have bad credit, you will be required to make a down payment of either $1,000 or 10% of the car’s selling price. Add this to the car’s monthly statements and interest rates and things can get extremely expensive. On the other hand, if you can pay for your new car entirely in cash, you will not have to make any car payments at all. This also means no interest rates.
Whether your credit score is good or bad, paying for a car in cash is ideal.
Your Debt To Income Ratio (DTI)
A debt to income ratio is the cost of your bills each month divided by your income before taxes. If your debt to income ratio is high, your lender will want to verify your income through pay stubs and other financial documents. Once your lender verifies this information, it will decide if you qualify for a loan or not.
Honesty Is Always The Best Policy
Although it may be tempting to lie and say your credit score and income are higher than they are when purchasing a car, honesty is always the best policy. That means no fake pay stubs for a car loan. Faking paystubs and W-2 forms can get you in serious trouble with the law. This is especially true when there are so many ways to verify income.
If you want to ensure that you receive a decent car loan, lower your credit score and make sure that you are fully employed. Even if your credit score is good, it is wise to always bring pay stubs as proof of employment with you when purchasing a car.