Amara walker September 21, 2022

You must have seen some lenders advertise on their websites that they lend money to the unemployed looking to buy a car. That sounds very strange, and in fact, for many of them, it is a Catch-22 situation: you will be unable to get to work without a car, but will you be able to pay for one without having a job?

Getting to the bottom of what cause lenders to lend money despite the absence of a job, it is discovered that alternative income sources help, including but not limited to benefits or passive income like rent.

Most often than not, you will be able to finance only second-hand cars as they are cheaper than a brand-new car, and you may need to put in a bigger deposit size, probably at least 20% instead of 10% of the market value of the car.

Conventional lending is not an option because no bank will grant you money when you are unemployed, but a couple of online lenders may sign off on your application.

What do you need to qualify for a car loan when you are unemployed?

Taking out a loan when you are out of work is a rigid dichotomy between borrowing and unemployment, but some lenders do not mind signing off on the application for a car loan when you are unemployed. Here are the conditions that you will have to meet:

  • A good credit score

Forget that you will ever get the nod for your auto loan if you are unemployed, and on top of that, your credit history is not up to the mark. Though a car loan for bad credit people in Ireland is an alternative, it is exclusively available for those with a good credit score. If you are borrowing money when you are out of work, you are already risking your finances – because if you make a default, penalties will add up to the cost of the loan and take a toll on your buying capacity down the line.

No lender would risk lending you money when your chances of making a default are clearly visible on your credit report in the form of a poor credit rating. Depending on the policy of the lender, you need to maintain your credit score at that level.

If your credit score is not good, you should wait until you land a new job and try to improve your credit score. By paying off all utility bills, rent, debt, and credit card bills on time, you will be able to give a boost to your credit rating.  

  • A solid income source

Because you do not have a stable full-time job or business, it does not mean that a lender will not look at your repaying capacity. Having a job and being able to pay off the debt are two different things.

A lender would want you to have an income source sufficient to pay off the debt after meeting all of your monthly expenses. Rent, benefits or other forms of income could be taken into account to gauge your repaying capacity.

  • A bigger down payment

A rule of thumb says that you should put down at least 10% of the market value of your car as a down payment, but since you do not have a full-time job, you will be asked to put down a bigger down payment of at least 20%.

This will whittle down the risk of the lender. It may probably cover half of the cost of the car, especially if you are buying second-hand. You can say it is a win-win approach. A lender will bear less risk, while it will cost you less money overall.

Does it make sense to take out a car loan without work?

Although some lenders do not mind lending you money to finance your car, even if you are unemployed, you should be a bit careful. Because it seems convenient and an ideal financing source superficially, you are not supposed to throw your caution to the wind.

You will have to weigh up whether it favours or disfavours you carefully. Ideally, you should avoid taking out a car loan when you are unemployed. This can put you in jeopardy. For instance, you may face difficulty paying off the debt on time.

This will attract interest penalties and late payment fees, which add up to the cost of the debt. You will eventually feel a lot of burden on your finances and then make a permanent default.

In the end, a lender will turn to debt collection agencies, and they will start chasing you to make payments. They may drag you to court. Once a CCJ is issued, you will be unable to borrow money at affordable interest rates unless it is removed from your credit report.

If you find that your financial situation is strong enough to repay the debt, you should still be wary. Emergencies can crop up at any time, and it is likely that your emergency cushion does not support you at that time.

You may need to take out unemployed cash loans in Ireland to foot the bill, and now you have two debts to handle simultaneously. If your budget does not cover both payments along with your other expenses, you are certainly going to lose your grip over your finances. If you are looking to borrow money to finance your car, make sure you have a stable job or business. In the meantime, try not to make a default on your bills, as they may affect your credit score.

To sum up

Although some lenders do not mind approving your application for a car loan when you are unemployed, you should be careful of your repaying capacity. Do not forget that you will have to put down a bigger deposit size and maintain a good credit report. However, it is still suggested that you avoid financing a car until you land a job or generate a stable income source.