Car Loan With Income, But No Income
October 14, 2010 11:25 AM Subscribe
Car loan with near perfect credit, no paystub income, but over $30,000 in other (legal) "income".
My SO and I (married) submitted a joint application for a new car loan for $24,000 through Capital One autoloan.
We are both students. My SO is on a fellowship and also takes out student loans. I take out student loans and earn $24,000 per year on the side from a website I run. According to the IRS, our adjusted gross income is $30,000. Our credit score is near perfect.
Initially the application process went fine, we were approved for a $28,000 car loan with a 3.41% interest rate over 60 months. The problems started when they called to verify our income.
Capitol One explained that money from fellowships and from my website (that we report to the IRS through 1099-MISC and 1040 schedule C and pay taxes on it all) does not count as income. Thus, according to Capitol One, we make $0 a year. And therefore they very likely won't be able to give us a loan.
We have ~$15,000 in cash available to purchase the car, however we wanted the car loan to be able to have some safety money as our income comes in bursts and we will be moving to a new city next June (to start a guaranteed job of ~$50,000).
In addition we have $15,000 available credit on our credit cards (we have never carried a balance before) although obviously the interest rate is higher on the credit cards than a car loan would be. I'm sure we could get a parent to co-sign but wanted to buy it ourselves.
What is the best way for us to buy a new car?
My SO and I (married) submitted a joint application for a new car loan for $24,000 through Capital One autoloan.
We are both students. My SO is on a fellowship and also takes out student loans. I take out student loans and earn $24,000 per year on the side from a website I run. According to the IRS, our adjusted gross income is $30,000. Our credit score is near perfect.
Initially the application process went fine, we were approved for a $28,000 car loan with a 3.41% interest rate over 60 months. The problems started when they called to verify our income.
Capitol One explained that money from fellowships and from my website (that we report to the IRS through 1099-MISC and 1040 schedule C and pay taxes on it all) does not count as income. Thus, according to Capitol One, we make $0 a year. And therefore they very likely won't be able to give us a loan.
We have ~$15,000 in cash available to purchase the car, however we wanted the car loan to be able to have some safety money as our income comes in bursts and we will be moving to a new city next June (to start a guaranteed job of ~$50,000).
In addition we have $15,000 available credit on our credit cards (we have never carried a balance before) although obviously the interest rate is higher on the credit cards than a car loan would be. I'm sure we could get a parent to co-sign but wanted to buy it ourselves.
What is the best way for us to buy a new car?
You could buy a very nice used car for say, $12,000 cash.
posted by ghharr at 11:31 AM on October 14, 2010 [4 favorites]
posted by ghharr at 11:31 AM on October 14, 2010 [4 favorites]
Response by poster: The car we want to buy is a Honda Fit ($19,000-20,000). We were not going to use all of Capitol One's "blank check".
posted by LudgerLassen at 11:32 AM on October 14, 2010
posted by LudgerLassen at 11:32 AM on October 14, 2010
Why aren't you getting the loan through a dealer?
(I think you are spending way way way too much on a car - even at the new higher salary its like 12%-15% of after-tax income).
posted by JPD at 11:44 AM on October 14, 2010 [4 favorites]
(I think you are spending way way way too much on a car - even at the new higher salary its like 12%-15% of after-tax income).
posted by JPD at 11:44 AM on October 14, 2010 [4 favorites]
Not to be a negatron, but why purchase a brand new car? The value depreciates immediately after driving it off of the lot. It would be much more sensible to purchase a used car with your savings--ESPECIALLY since you're already taking out loans. Spending 24k on a new car when you are making 30k annual income with student loans is not a good idea. It sounds like you have more than enough to purchase an awesome used car already. Why add more debt?
posted by 200burritos at 11:44 AM on October 14, 2010 [7 favorites]
posted by 200burritos at 11:44 AM on October 14, 2010 [7 favorites]
Response by poster: To provide more information about our long term finances:
Starting in June, my SO will make $50,000 (as a medical resident after finishing medical school) and I will make $24,000 on the side project website and looking for a job after finishing my schooling (so base of $74,000 total plus my income from a real job which will be in the range of $50,000-$80,000). Once my SO finishes their 3 year residency, their starting salary is ~$120,000.
posted by LudgerLassen at 11:54 AM on October 14, 2010
Starting in June, my SO will make $50,000 (as a medical resident after finishing medical school) and I will make $24,000 on the side project website and looking for a job after finishing my schooling (so base of $74,000 total plus my income from a real job which will be in the range of $50,000-$80,000). Once my SO finishes their 3 year residency, their starting salary is ~$120,000.
posted by LudgerLassen at 11:54 AM on October 14, 2010
If you shop you will surely find someone willing to lend you money: dealer financing, credit union, other banks.
That said, it's not wise to make this kind of financial decision now based on projected future earnings. I think you should buy a cheaper used car with cash, you can use the money saved to buy a nice new car in five years or whatever when your income is higher (or a sweet vacation or a college fund for kids or student loan payments or an unforeseen medical emergency etc...)
posted by ghharr at 12:06 PM on October 14, 2010 [2 favorites]
That said, it's not wise to make this kind of financial decision now based on projected future earnings. I think you should buy a cheaper used car with cash, you can use the money saved to buy a nice new car in five years or whatever when your income is higher (or a sweet vacation or a college fund for kids or student loan payments or an unforeseen medical emergency etc...)
posted by ghharr at 12:06 PM on October 14, 2010 [2 favorites]
So then wait three years and buy this car then. The fact remains this car is too expensive for you RIGHT NOW. Its arguably too expensive for you even when you are making 74k.
posted by JPD at 12:06 PM on October 14, 2010 [10 favorites]
posted by JPD at 12:06 PM on October 14, 2010 [10 favorites]
This is a lot of eggs being counted before they're hatched.
You've heard that euphemism before. What if you break up? What ifone of you is disabled by an accident? What if your so devices doctoring is not a good fit? What if your Internet business shrivels up?
What if all of those things happen?
The crowd is suggesting a cheaper car bc many of us have lived (areliving) through terrifyingly lean times. We don't want to see you fall under the potential burden of this risk.
Additionally, new cars lose (some astonishingly huge)% of their value as soon as you drive off the lot.
Either borrow a smaller amount at a used car lot, or buy a cheaper car with your savings. There's a reason lenders consider some types of income invalid. That reason? Their unpredictable nature. (more unpredictable than 'regular jobs' bythe aggregatds statistics. Yes, I know you probably really are a pair of responsible, upstanding, industrious outliers, but the statistics say: 'lending money to this applicant is a bad idea.')
posted by bilabial at 12:12 PM on October 14, 2010 [1 favorite]
You've heard that euphemism before. What if you break up? What ifone of you is disabled by an accident? What if your so devices doctoring is not a good fit? What if your Internet business shrivels up?
What if all of those things happen?
The crowd is suggesting a cheaper car bc many of us have lived (areliving) through terrifyingly lean times. We don't want to see you fall under the potential burden of this risk.
Additionally, new cars lose (some astonishingly huge)% of their value as soon as you drive off the lot.
Either borrow a smaller amount at a used car lot, or buy a cheaper car with your savings. There's a reason lenders consider some types of income invalid. That reason? Their unpredictable nature. (more unpredictable than 'regular jobs' bythe aggregatds statistics. Yes, I know you probably really are a pair of responsible, upstanding, industrious outliers, but the statistics say: 'lending money to this applicant is a bad idea.')
posted by bilabial at 12:12 PM on October 14, 2010 [1 favorite]
We just did this.
In short, you are both graduate students with negligible income as far as the bank is concerned. Even considering the kind of income you do have, $19k-20k is far, far too much car for you. There's just no good reason to buy a new car in your financial situation.
You can pick up a perfectly serviceable 2007 Honda Fit with less than 50k miles for under ten grand. If you want to get a better car when you finish residency, hey, go for it, but you're probably going to have massive student debt, so additional borrowing against future income is something to be avoided.
posted by valkyryn at 12:34 PM on October 14, 2010 [3 favorites]
In short, you are both graduate students with negligible income as far as the bank is concerned. Even considering the kind of income you do have, $19k-20k is far, far too much car for you. There's just no good reason to buy a new car in your financial situation.
You can pick up a perfectly serviceable 2007 Honda Fit with less than 50k miles for under ten grand. If you want to get a better car when you finish residency, hey, go for it, but you're probably going to have massive student debt, so additional borrowing against future income is something to be avoided.
posted by valkyryn at 12:34 PM on October 14, 2010 [3 favorites]
Capitol One is doing you one hell of a big favor.
posted by keratacon at 6:23 PM on October 14, 2010 [1 favorite]
posted by keratacon at 6:23 PM on October 14, 2010 [1 favorite]
You know you can buy New Car Smell in a spray can, yes?
Don't go into debt for a car.
posted by flabdablet at 10:49 PM on October 14, 2010 [2 favorites]
Don't go into debt for a car.
posted by flabdablet at 10:49 PM on October 14, 2010 [2 favorites]
This thread is closed to new comments.
posted by mkb at 11:28 AM on October 14, 2010