Since 1974, the Supplemental Security Income (SSI) program has helped several blind, aged and disabled Americans. Today, the SSI program is a source of income to approximately eight million people of America.
Car lenders often have a problem in approving your loan request, if you receive income from SSI or any of the following sources:
>> Social security benefits
>> Disability income
>> Workers compensation
>> Unemployment benefits
>> Interest income
>> Cash from friends and relatives
Why do Lenders have a problem with People on Social Security?
Lenders categorize income in two parts:
1. Earned Income
You earn wages, net-earnings and other such incomes because of your job or business. Such income is considered earned income.
2. Unearned Income
SSI, compensation and other social security benefits that you receive without doing any work are considered unearned income.
Lenders believe that unearned income is unstable. It is possible that you may receive less income in future due to change in government policies. Also, the unearned income is necessary for your survival. It is usually inadequate to make regular monthly payments on a car loan.
So, if you have unearned income, lenders will not approve your car loan application easily.
How to get a Car Loan if you are on Social Security?
People with social security are considered risky borrowers. So, to get approved for a car loan, your goal must be to reduce the lender’s risk and ensure regular payments. Following are the ways in which you can fulfill your goal:
1. Income from Job
There are several factors that determine your loan approval. Earned income is one of them. If you are currently employed, you can ask the lender to consider your income from the job.
2. Duration of Employment
If your earned income is slightly lower than the lender’s minimum monthly income requirement, you can convince him of regular payments by providing a proof of your stable employment. Show your Employment Verification Letter to the lender as it includes the duration of your employment.
3. Inexpensive Car
Expensive car results in higher risk to a lender and lowers your chances of approval. So, it is important that you choose an inexpensive car. If you opt for a cheaper car, the loan amount will be reduced along with the lender’s risk. So, he will have no problem in approving your loan application.
4. Down Payment
Down payment is the upfront amount that you pay to the dealer. It will lower the loan amount and lender’s risk. Getting a car loan will become very easy if you can manage a down payment of at least ten percent of the total car price.
A co-owner has the right of ownership as well as shares the responsibility of the car loan. You can ask your spouse or children to co-own the car. If anyone is willing to share your responsibility, lender’s risk will be reduced and you will have no problem in getting the loan.
There is also the option of finding someone to co-sign your loan agreement. If you can find someone to assume the responsibility of regular payments, lenders will approve your loan application. But, remember that co-signer needs to have good credit score and lower debt-to-income ratio.
If a car is a necessity for you, it is important that you do not let anything to create an obstacle in getting a car loan. Social security is a boon for you. Follow the tips mentioned in this guide to ensure that it doesn’t become a bane for you.