How Long Should You Be Employed to get a Car Loan

Americans continue to buy cars despite the flagging economy and as a result new car sales have gone up by nearly 14.2 percent from October 2012.

However, while statistics might indicate a demand, there can’t be many people out there who can walk into a dealership with $31,000 in cash to drop on the dealership counter.  More often than not, most people look to car loans when buying cars.

So when exactly is one eligible for a car loan? Employed

The answer is a minimum of six months employment, preferably with the same employer.

Does that mean that if one has six months’ pay stubs then the loan will be approved?

Unfortunately, things like loans are never that simple.  Along with work history, a lot also depends on one’s credit score and a good credit score is very important for getting a good interest rate.  Some lenders like to see a consistent employment history of two years, but a lesser tenure does not mean that one won’t be eligible for a loan.

So there are two factors to bear in mind when applying for a car loan:

  1. Employment history
  2. Credit score

Both these factors play a major role in getting a loan approved and at what interest rate.


First Time Buyers Should Wait
The uncertainty of buying a car for the first time can lead to poor choices such as rushing in to a dealership with the first few pay check at a new job. Every loan application has an employment history section and that is the first place a lender will look at. There is no minimum to apply, but it can make all the difference on whether you qualify for the loan and at what interest rate.

Whether you’re a recent grad or you’ve just gotten the job of a lifetime, by waiting for six months in the new job, first time car buyers can greatly improve their chances of getting a good loan at a reasonable interest rate.  This can be especially important if there are gaps in your employment history and if you have a history of changing jobs. All these are red flags to the loan agency. By staying in your current job for a minimum period of six months, with a co-signer the loan can be yours. It’s worth mentioning that even if you are unemployed you can sometimes qualify for a loan, however, unemployment benefits do not qualify as income.

If payments are made regularly, and your credit history remains good you are on your way to establishing good credit history and keeping those new set of wheels.  After a year at the same job, you can improve the loan you already have with refinancing at a better rate. However, if you default on payments both you and your co-signer become liable and your credit scores will suffer.

Risk factors always drive the interest rate set by the lender.  The higher the risk, the higher the interest rate will be.

The Documents – Prove It

Some other basic formalities need to be completed before applying for a car loan:


  1. Proof of employment – this can be your pay stubs or bank statements.  Sometimes lenders call up employers for verification.  Added collateral security can also be provided. However, for car loans, sometimes the vehicle itself becomes collateral security and defaulters could risk losing the car.


  1. Proof of Insurance – An insurance policy for the car is a requirement prior to applying for a loan.  The time to start hunting for an insurance agency is around the same time that you start looking for a car. This will save you time once you have decided on a car and have been approved for a loan.


  1. Proof of Identity – Most often, personal identification is required.  Lending institutions have created a subjective point system, and the proof of identity requires 100 points of personal identification.  This means a photo id with your signature, two months of bank statements with your current address, utility bills also registered to your current address to start. Other documents that will be accepted are any form of government issued ID and stock certificates. All these will work just fine.

Minimize your risk factor by being employed for at least six months, stay calm and enjoy the waiting period. Good things come to those who wait.

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