When you apply for an automobile loan, your lender evaluates the likelihood of you repaying the debt. Lender's lose money if you default on a debt so most lenders check your past credit history and current income levels before extending credit to you. Few lenders approve loans based on unemployment income but you may qualify for a loan if you receive worker's compensation payments.
Debt-to-Income
When you submit a loan application, your lender checks your credit report to find out about your existing loan obligations and your monthly debt payments. Your lender also typically reviews your last two year's of tax returns and your most recent pay slips. By dividing your monthly debt payments into your current monthly income, your lender can determine your debt-to-income level. Most lenders only agree to extend you credit if your DTI remains below 35 percent although some lenders allow you to borrow with a DTI ratio of up to 50 percent.
Unemployment
As of 2011, unemployment benefits in the United States can last for up to 99 weeks. Therefore, unemployment benefits are a temporary source of income. Typically, you can only qualify for a car loan or other types of credit if you have an open-ended income source or a two year history of steady income from self-employment. Car loans normally have terms that last for between two and six years. Therefore, your 99 weeks of unemployment benefits will end long before you have paid off your car loan. Furthermore, a variety of different factors, such as cashing in a 401k early, could cause your state government to stop your unemployment benefits even earlier than anticipated.
Worker's Compensation
Worker's compensation comes in a variety of different guises and you may qualify for some type of compensation under state or federal laws. You cannot get a car loan based on a one-off settlement since you need to have recurring income in order to qualify for a loan. Furthermore, you cannot get a car loan based on short-term compensation payments that expire after a few months. However, some compensation plans include lifetime income payments in which case you can use that income to qualify for a car loan.
Other Considerations
Some lenders offer high interest rate loans that people with poor credit can qualify for. These loans are often "stated income loans." This means you verbally provide your lender with information about your income levels but you do not have to provide supporting documentation. Therefore, you could count your unemployment benefit or short-term worker's compensation payments as stated income when you apply for the loan. However, once approved you have to contend with high payments caused by the high interest rates. Once your unemployment ends, your lender can repossess your car if you can no longer afford to make the payments. Therefore, stated income loans often provide short-term benefits but can cause long-term problems.
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