Car Loans for People on Benefits
When you are receiving government benefits, it’s generally implied that your financial situation isn’t quite perfect. But, the need to buy a new vehicle doesn’t usually wait for life to get into perfect working order. If you need or want to purchase a vehicle while you are on benefits, you can qualify. It may just be a little bit harder to get that car you want. Purchasing a vehicle is a big investment. If you have a limited income, you need to get the best loan rates possible to make your payments manageable. Before you start applying for loans, here are a few things to keep in mind:
There are a lot of companies that offer seemingly easy access to credit for a car. If you are on government benefits you will likely have a higher interest rate and you will have a little more to prove when you apply for a loan. However, some of these auto loan companies can be tricky. Interest rates can be extremely high. When you want to find a car loan, take time to do your research and check out any company or car lot you plan to work with.
When you are researching any loan company, check out their website and read the fine details. Some warning signs that a company could be a scam or will be difficult to work with:
• Fake promises
• Sounds too good to be true
• They try too hard
• Bad Grammar: If they don’t take the time to make sure their website is written well, you can be sure they won’t spend much time taking care of you.
• They pressure you
Any website and company that offers car loans should inform you of estimated interest rates. In most cases you will not get the rates listed on the website, but they offer a good idea of what to expect. Look carefully before signing. Some companies charge almost 50 percent interest rate if you have bad credit or you are on government benefits. At rates that high, you could buy another car with the interest payments you’ll owe.
Qualifying for a loan while on benefits
Qualifying for an auto loan while receiving government benefits can be a little tricky. Lenders may not consider income from benefits as income that can be used to pay off your loan. Additionally, having benefits can reflect badly on your financial situation because lenders may assume that since you are receiving benefits you will not have enough income to make your payments on time.
There are a few things you can do to help increase your chances of getting a car loan:
Have a down payment: No matter what your financial situation looks like, having a decent down payment will almost guarantee that you qualify for some type of financing. Ideally you have at least $2,000 set aside for a down payment. Not only will this help you qualify for a loan, you may also qualify for better interest rates.
Make your other payments on time: Lenders can check your credit history. It’s important to lenders that you pay your bills on time. A history of good payments will show lenders that you can be trusted to pay your debt back.
Consider Credit Unions First: Credit unions tend to offer fair interest rates. If you are a member of the credit union you may be able to save even more. Credit unions may be more willing to work with you than a traditional bank.
Get a cosigner: If you have bad credit or you are receiving government benefits (which means you have a lower income), you may want to consider asking a friend or family member to cosign on the loan for you. A cosigner essentially takes responsibility for the loan if you cannot pay it back.
Having a friend of family member cosign on a loan can be tricky. If you aren’t able to pay your bill, the cosigner could be stuck footing the bill for you and that’s not likely to end well for your relationship. If you do opt to have a cosigner, do everything in your power to pay your bill on time every month so you don’t affect your relationship with whoever agrees to cosign with you.
Buy used: You may have to lower your expectations when it comes to purchasing a car. If you have a smaller income you are going to qualify for less money on a car. Choose a sensible vehicle with manageable monthly payments so you don’t take more away from your already-limited budget.
Consider paying Cash
Getting an auto loan when you receive government benefits is not impossible. However, if you have bad credit, no down payment and you are solely on government benefits it’s going to be pretty close to impossible to get a loan that offers anything close to reasonable interest rates.
Try to get by on public transport and car pooling while establishing a savings account to purchase a used car outright. In the long run this can save you even more money.
Getting around town is important, especially if you need to get to work. When you don’t make enough money to qualify for most car loans but you need a car loan to get to a job so you can qualify for loans, you may feel like you’re in a Catch-22. But, you can qualify for a loan if you take the time to work a little harder to make it easier to qualify.
Remember: keep an eye out for companies that sound too good to be true, don’t accept insanely high interest rates because you don’t think you qualify for anything better and try to save up at least a small down payment to improve your chances of getting a car loan.