Lenders determine credit risk based on information obtained from your credit report, your employment history and annual income. Most lenders prefer at least two years of verifiable employment history and income. Some lenders may allow less, although you might obtain a higher interest rate than average or other loan restrictions.
Traditional Lending
If you intend to apply for low interest rates through an auto manufacturer bank or local lender, such as a credit union, expect to submit two years of employment information. If you've just started a new job, your lender will consider whether you remained in the same line of work and how long you were at your last job. Some lenders offer special incentives for recently graduated students, so you might still qualify for a loan without years of employment history depending on lender offers. With good to excellent credit, you might obtain a loan with less than two years of time established with your employer.
Subprime Lending
Subprime lenders provide auto loans to risky borrowers at higher interest rates. These lenders are more lenient with employment or income requirements but require a shorter loan term and higher down payment requirements. Subprime lenders minimize risk by requiring thousands of dollars for a down payment and shorter loan terms for faster payment of principle. You must have a job to obtain a subprime loan, but might only need to provide one year or several months of employment information.
Other Determining Factors
Even if you've been with employer for many years, you aren't guaranteed an auto loan approval. Lenders also review your credit history and past accounts. If you haven't paid your bills, your credit score will decrease. Instances such as repossessions, foreclosure, late payments and judgments will decrease the likelihood of obtaining a loan, despite employment history. Your debt-to-income ratio, or the amount of debts you pay each month compared to your income, is also a factor used to determine a loan approval. Someone employed less than two years might obtain a loan approval with a good debt-to-income ratio and credit score.
Employment Considerations
Expect to provide your employer information to your potential lender along with a paystub that lists your year-to-date income. If you work "off the books," meaning you receive payment that isn't reported to the Internal Revenue Service, you can't use your employment information unless your employer writes a letter to your lender, although some lenders do not accept a letter from an employer. Expect to provide proof of previous tax returns if you're self employed. Some lenders may recognize other forms of income, such as a pension, Social Security, disability or investment income.
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