Getting a Car Loan on a Cash-Based Income

Car loans can be difficult to get approved for if you have both bad credit and cash-based income. One of the biggest drawbacks to getting paid in cash is that income verification can be more complex when you are applying for loans and financing. Preparation and organization can make car loans easier to get for those with cash incomes and bad credit histories.

Proof of Income

A cash-based income cannot be proven through the usual method of providing pay stubs and W-2 forms to the car dealership before financing. There are ways you can provide proof of cash income, however. Earnings you get as a non-employee independent contractor are meant to be reported to the IRS, and you will receive a Form 1099-Misc. Some high-risk car loan providers will also look at deposit records from checking accounts. Be prepared with as many official financial documents you can organize that will help you prove your cash income.

Report Your Earnings

There is always a temptation among those with a cash-based income not to report their “under the table” earnings come tax season. There are a number of serious drawbacks to not reporting all of your earnings, the least of which being a justified audit of your returns, which can include difficulties gaining approval on important financing applications. Without accurately reported cash earnings, your tax returns will not reflect your income properly. Those with bad credit will have the most difficulty, as high-risk car loan qualifications are often heavily reliant on proof of income.

Partial Cash Income

Even if you only make a part of your income in cash, you should still be in the habit of reporting it on your taxes so you can prove your entire income when applying for a car loan with bad credit. Dealerships that offer high risk car loans to applicants with bad credit will look closely at the relationship between your total income and debt.

If you choose not to report your cash income and cannot provide proof of those earnings, that money will not be taken into account when the amount of financing you can receive is calculated. This will result in needing to downgrade the budget you had in mind for your car or needing to make a more substantial down payment.

Bad credit and a cash-based income can make getting approved for a loan more complex, but it is not impossible. An ability to get financing is often contingent on reporting all of your cash income in order to provide proof of those earnings.

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