Last Updated On: October 12, 2016

How Child Support Income is Viewed by Lenders

When it comes to buying a car, one of the most important considerations is the loan and how any child support that you might receive will effect it.

Borrowers who receive regular monthly child support payments and want to include this amount in their income to qualify for an auto loan may have some disappointing responses from the lenders they apply with. Sometimes getting the car loan approved causes more stress than how much you should pay for a new car.

Moreover, while many people concentrate on trying to qualify for the best rate and paying the least amount out-of-pocket, those with poor credit only focus on being eligible for funding. If they are either making or receiving child support payments, the qualifying process can be significantly different.

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Before beginning the loan process, it is important to understand how lenders see income. When a customer decides to borrow from a moneylender, the provider will look at many things such as;

  • If a borrower has a credit history or not.
  • The amount of money they earn
  • How long they have been with their current employer
  • The number of existing debts they have.
  • Also, possibly a few other items.

How you stand with the lender

Borrowers with a strong history of repaying their debts on time have a small number of existing debts. Adequate income, to pay for their monthly obligations represents a lower risk. They usually wind up getting the best interest rates and are required to pay less down. Those who have had a few late payments or charge-offs or who have recently changed jobs may not qualify for the loan.

You May Qualify For A Subprime Loan

Subprime lenders, on the other hand, specialize in providing high risk loans to borrowers who have a higher risk profile. Those who have had a few issues with repaying debts in the past can qualify for a subprime loan and loans tailored to fit your need for low-income car loans.

It is important though that they show more than enough money coming in to meet their monthly obligations. This helps prove that they can make their monthly loan payments on time. Subprime auto lenders look closer at your income than your credit score, so it is important for them to have an accurate evaluation of your income.

Subprime refinancing for a car loan to use the equity for cash is a good way to consolidate debt. Refinancing your car can give you a lower APR then no collateral loans.

Child Support As Income

Child Support Auto Loans

Many lenders look at child support payments differently than a regular income because they can garnish the money if the borrower defaults on the loan. What this means is that if a borrower defaults on their loan and can no longer make the regularly scheduled payments, the lender can still repossess the car. However, they cannot obtain a judgment to garnish those funds. They will not be able to use them to satisfy the difference between the loan and what the lender sells the car for, leaving them with a loss.

So, does that mean that people with bad credit who receive child support payments are just out of luck when it comes to getting a car loan? Absolutely not.

There are a couple of things you can do to improve Your chances of being approved for a loan.

  • 1  Having a stable job is important. The longer a borrower has been on the job, the more steadfast he or she appears to the lender. Borrowers who have recently changed jobs stand a better chance of being approved if they wait for at least six months before applying for a car loan. Additionally, taking on a second job to show more income from a source that could be used directly toward a purchase will also help.
  • 2  Long-term stability also counts when it comes to a borrower’s residence. The longer someone has lived in the same apartment or house, the better he or she seem to a lender. Because it shows that he or she can make necessary payments like a mortgage or rent payment on time.
  • 3  Credit issues that revolve around a particular situation that have a clear explanation look better to potential lenders. These could include items such as a medical illness or other emergencies rather than a pattern of bad behavior. Being able to provide a lender with an explanation for a cluster of missed or late payments will go a long way to landing an approval.

Proving Child Support Income

Borrowers who use child support payments to bolster their income will have to be prepared to show both the amount of the payments as well as the frequency. This means that to claim the payments as income, the borrower will need to provide a copy of the order. That will outline the amount and frequency of the payments but the duration of time they will be receiving them.

Child Support Payment Issues

If the borrower is ordered to make scheduled child support payments is behind, getting approved for a car loan is almost impossible. The leading concern for this is that borrowers of this type tend to job shift to avoid court garnishments. This lack of stability does not sit well with most lenders and most will red flag the application immediately.

Of course, job hopping is not the only reason banks do not want to take a chance on lending money to someone behind in their child support payments. The other reason is that when the courts do catch up to the borrower and begin garnishing wages to catch up the delinquent support, it leaves the borrower with less available funds with which their car payments. Usually, this results in a defaulted loan and repossession.

The good news is that while it might be more difficult, borrowers in this situation even have a few options to improve their chances of success with lenders. Making arrangements with child services to catch up the delinquent payments and providing proof of these systems will cause some banks to take a second look.

Gaining Money for Your Divorce and Child Custody Case

Valley Auto Loans offers useful, practical information and financial tips for paying for and selecting an attorney, paying lawyer retainer fees and how-to advice about divorce and child custody costs and where to get help.

I am convinced that borrowers with poor credit will have to overcome several hurdles to secure financing to purchase a new car. However, with a little work, both situations can be minimized. Applicants should be prepared to supply any applicable documentation that the lender will require proving your ability to pay back the loan.