Can I get car finance if Im unemployed?
One of the most common questions we get asked is how people can get approved for car finance if they are unemployed. For a lot of people, having a car is essential for being able to get to work or generally get around. Its true that many people are able to get by in a place like London by relying purely on tubes, trains and taxis. But if you live and work in places that are not as well served by public transport, it can be almost impossible. The short answer is that its possible but often very difficult. Obviously, the finance company wants to know that you can afford to make your regular monthly finance payment every single month, and if you cant show income then they will justifiably assume that you wont be able to make payments. If you have a regular source of income that isnt necessarily a job, such as rental income from a property, that will be helpful as long as you can show that it is reliable income and is declared on your tax return. Plenty of people have unconventional income streams, but the point is that it has to be verifiable. Odd jobs here and there, or handouts from mum and dad, are unlikely to be enough to convince a finance company to lend you money for a car. The reality is that many lenders will simply refuse you a loan if you are unemployed, regardless of any mitigating circumstances. Lenders that are prepared to offer you a loan will almost certainly do so on poorer terms than you would be offered if you have a job. But Ive always had a job  this is just temporary  This is a very common situation  you can show that youve been happily employed for years, and that your future employment prospects are excellent. But you dont have a job right now. If you have a solid employment history, it will certainly help in getting approved for car finance. But the reality is that some lenders will still simply say no. Others will say yes, but they will hit you with a higher interest rate and/or fees, or limit how much they are prepared to lend you. The finance approval process is all about assessing risk. While obviously theres no guarantee that having a job today will mean that you wont suddenly be unemployed in three months time, its still a better bet than someone who doesnt have a job now and cant guarantee when they may start a new job. It may sound unfair if youve had an unblemished employment history up until now, but the finance companies know the odds based on years and years of data, and it inevitably shows that people without jobs are more likely to run into financial trouble than people with jobs. But I have enough money in my account to keep me going for months  Even if youve been a diligent saver and ensured you have a decent buffer to keep you going while you search for a new job, the finance company will still consider it a significant risk if you dont have reliable and regular income. For years its been a commonly repeated phrase that most people are only a couple of pay cheques from homelessness, and its still a pretty accurate situation. The coronavirus pandemic has certainly not helped this at all, and it could take years for the market to recover. But my partner has a good job  This is very common, and may or may not be helpful. Most finance companies wont allow joint applications for a car loan, but they may consider household income if you are married. If youre not married, its usually not that helpful  thats not banks making social judgments, its just looking at data that shows that married couples tend to have more stable finances than unmarried couples. It may be that your partner/spouse can be a guarantor for your finance application, but this is less common than it is for parents to be able to act as a guarantor for their kids loans. Yes, age will inevitably come into it, although its not necessarily a deciding factor. If youre 22 years old and unemployed, you are likely to be seen as a higher risk than someone whos 42 and unemployed because youre unlikely to be able to show a stable employment history and a stable financial position. When youre younger, your financial position tends to be in a greater state of flux than when youre older and have settled down. Over the term of the finance agreement (usually three to five years), your financial circumstances are likely to change more drastically than someone already in middle age. Your income is more likely to increase over that time, but your expenses usually increase significantly as well. Youre also more likely to change jobs more often at a younger age (either by your own choice or against your will) compared to older people. All of this adds risk for a lender, so if you are unemployed now then it very much works against you. Again, the finance companies base decisions on their data, and they have statistics that inform them of the relative risks. Play the long game  The simple reality is that not having a job will drastically reduce your options for financing a car. Most people will find lenders who will provide them with a loan, but the terms are likely to be unfavourable. Consider your options carefully, and be prepared to lower your expectations considerably. If you are genuinely convinced that youre only in a short-term bind, then look for short-term solutions rather than tying yourself into a bad loan over a long period. By short-term solutions, I dont mean payday loans unless you are seriously desperate right now and extremely confident you can clear the debt in very short order  payday lenders thrive from borrowers who cant clear their debts and get sucked into a downwards spiral of neverending problems. If youd normally be spending a few hundred pounds a month on a car loan and associated costs (insurance, fuel, servicing, road tax, etc. ), that could cover a lot of bus tickets or taxi fares. Riding your bike, car pooling with workmates or friends, renting a car on the occasions when you absolutely need it  there are usually options around (even if theyre not very good) that can keep you going in the short term so that you are in a much stronger position to make a loan application in the future.