Getting Verified for Auto Loans: Income & Employment Checks

Applying for a car loan? As you start the process, you may be wondering: Do they check income for car loan approvals? If so, what documents do I need? Most lenders require income or employment verification to help decide if you can realistically afford the loan you’re applying for. 

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That said, the exact income requirements can vary based on the lender and loan type. Some lenders are strict, others more flexible. Most will want to see proof of income and a stable job history. But there are also alternative paths to approval — especially if your situation doesn’t fit the traditional mold. 

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In this article, we’ll break down what to expect from income verification and employment checks, and how you can prepare based on your situation.

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Key takeaways

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• Lenders check your income to evaluate if you can repay a loan on time.
• Your income helps determine your debt-to-income ratio — if you can afford current debts and new loan payments.
• Required documents for income checks may include pay stubs, tax returns or bank statements.
• Employed, unemployed and self-employed borrowers must all provide proof of income to qualify for loan approval.
• Proving your income for a car loan can help you secure a loan approval or even better loan terms.

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Why do lenders check your income for car loans?

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Before lenders approve a loan, they need to know you can pay it back, which is why they ask you to prove your income for a car loan. Your proof of income provides a picture of your financial situation, especially your debt-to-income (DTI) ratio. 

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Your DTI is how much of your income you use to cover your debts. Lenders use this insight to determine your ability to make payments and decide what loan terms to offer. The lower your DTI, the better terms you might qualify for, because it means you make enough to take care of existing debts and pay off a new loan. 

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Lenders want to see that your new loan won’t stretch your budget too thin. If you have a high DTI because too much of your income is already going toward other loans or credit cards, there's risk you won’t repay your loan. To offset that risk, a lender may offer you higher interest rates or stricter loan terms.  

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How to prove your income for a car loan

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These are the income documents you may need to refinance an auto loan:

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• Pay stubs: A pay stub or earning statement issued by an employer is the most common way to prove income for a car loan. It clearly states your earnings, deductions like taxes and the net income you take home. With a recent pay stub, a lender can confirm your employment status, income and ability to make monthly payments. 
• Tax returns: A lender may ask for your most recent tax returns to understand your current financial standing. 
• Bank statements: If you’re a self-employed gig worker or freelancer, you can provide bank statements as proof of income. Lenders look at the statement to see how much you earn and have saved to determine if you can keep up with monthly payments. 
• Letter from employer: If you can’t provide pay stubs, bank statements or tax returns, an employer verification letter can serve as proof of income. This letter will state your salary or hourly wage, bonuses, tips or commissions. It helps a lender confirm your job status, salary and length of employment. 
• W-2 or 1099 Forms: W-2s confirm employment income, while 1099s are for independent contractors or gig workers. Lenders typically ask for W-2 and 1099 forms when they need a full-year income summary rather than a few months of pay stubs.

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If you’re self-employed

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Being a self-employed borrower means you may face extra scrutiny when proving income for a car loan or refinancing. This is because lenders can’t ask for pay stubs or contact an employer to verify your income. 

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To check your income, a lender may ask for tax documents like your Form 1040, Schedule C, Schedule SE or 1099 from the last few years. These forms will show your total earnings and deductions over recent years, and you can ask the IRS for copies.

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A lender may also ask for bank statements for income verification and an Employer Identification Number (EIN) or business license to confirm your business’s legitimacy. If your DTI is high or your income is inconsistent, having a co-signer can improve your approval chances.

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If you’re unemployed

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Do lenders check income for a car loan even if you’re unemployed? Yes, because you need to pay back the loan, and you can’t without some form of income. 

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To show you can afford the loan, you’ll need proof of alternative income sources like investments, rental income or retirement income. The lender may also ask for proof of savings or assets to ensure you can make payments or a co-signer with steady earnings who can pay for you.

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Does employment history matter?

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Yes, your employment history is checked on a car loan if you state you’re an employee. Lenders run this check to confirm you have steady income and a strong work record. Many will look back two years, though some may focus more on your current job and earnings. Gaps or frequent job changes might raise questions, but they don’t automatically disqualify you from the loan.

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How to get verified for an auto loan

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Now that you know how to get verified for an auto loan, you’re ready to breeze through your new or refinanced loan application. Start by gathering the documents you need for income and employment checks. If you’re employed, get your paystubs, and if you’re unemployed or self-employed, you’ll likely need bank statements or 1099s. 

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You can get pre-qualified with a lender — with no impact on your credit — to know how much car you can afford and the loan terms you may qualify for. With RefiJet, you can pre-qualify for auto loan refinancing within minutes and see offers from lenders that match your requirements. 

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Start your online auto refinancing with RefiJet today!

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FAQs

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Here are some answers to common questions about checking income and employment for a car loan.

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Do car loan companies call to verify employment?

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Yes, a car loan company may call your employer to verify the work information you’ve provided. Confirming your employment lets the lender know if you have enough income coming in to make timely repayments. 

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Can I get a car without showing proof of income?

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You can get a car without showing proof of income if you pay for it upfront. If you’re financing, a lender checking your income for a car loan is part of the approval process. If you can’t provide proof of income, the lender may ask for a larger down payment or a co-signer instead. 

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Do lenders recheck income when refinancing a car loan?

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Yes, a lender may checks your income when refinancing a car loan. Refinancing a loan involves replacing your old car loan with a new one with more favorable terms. Lenders need to confirm you make enough to repay the new loan.

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Can I refinance my car loan if my income has decreased?

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It’s possible to refinance your car loan if your income has decreased, but you may not get the best loan terms. Your reduced income may make lenders suspect you’ll struggle with monthly payments. This can lead to less favorable terms, such as higher interest rates. However, if you have a low debt-to-income ratio and steady income, your reduced income may not be an issue.

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Do auto loan providers and refinancing companies use household income if you aren't co-signing?

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Yes, auto loan and refinancing providers may consider household income if you aren’t co-signing. If your income is low, including your spouse’s earnings can strengthen your application by showing financial stability. Check with your lender to determine their specific requirements.

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