According to the Government of Canada’s Service for People with Disabilities guide, approximately 3.6 million Canadians have one or more disability. Translated, one in eight Canadians require financial aid for either physical or mental health reasons.
Applicants who qualify for financial aid receive a monthly income if they’re unable to work full-time and will typically receive other benefits if they’re unable to work at all. Having a disability doesn’t always impact the ability to drive a car, as a disability can be a temporary physical or cognitive impairment. With this in mind, one might assume that getting approved for the lowest car loan rates on disability or any other government program would be easy, right?
Not so fast.
Getting approved for a low car loan rate on disability can be challenging. The reason for this is because if a person’s primary source of income is from a government program and they default on a car loan, a lender can’t go after that particular income source. Lenders are cautious when considering a car loan applicant who receives income from a government program. However, there are ways that a person can improve their chances of being approved for a car loan on disability. If you’re currently receiving your income from a government program, the following advice could help you get approved for the best car loan rates possible.
1. Have a garnished source of income
Garnishment is the procedure where a creditor can collect what a debtor owes. If the debtor defaults on a loan with an income source from the government, the creditor can’t reach for this property. This is why applying for a car loan with an income that is purely government sourced often requires a tough approval process, and it can be even more challenging if the applicant has less than perfect credit. However, if the applicant has another income source (i.e. a part-time job), the chances of getting approved for a car loan raise, because this source of income can be used as garnish for creditors. The longer an applicant has a part-time job and the higher the additional income is, the better chance of loan approval.
Lenders who cater to applicants with less than perfect credit typically have minimum income requirements that range between $1,500 to $1,800 per month (before taxes). If you bring in at least this much with a part-time job, or if you make this much with a job and government income combined, this amount is usually enough to get a lender to consider approving you for a loan.
In order for any income sourced by the government to be considered for a car loan, an applicant must provide additional information to lenders which proves the applicant has received government income for at least six months and that they will continue receiving the payments for the entirety of the loan term. An applicant who has a part-time job alongside government income will need to verify recent paycheque stubs, and potentially provide tax records to show the amount of income reported in the last year.
2. Get a co-signer
Especially in the case when an applicant doesn’t have a garnishable source of income, applying for a car loan on government income with a co-signer can greatly increase your chances of being approved. Applying for a car loan with a close family member or friend who earns a steady wage, has a good job, and solid credit as a cosigner will give lenders something to fall back on if the applicant fails to pay for the loan. A co-signer agrees to share the responsibility of the loan, which means that any delinquencies on the loan will impact both the applicant and the co-signer’s credit report, potentially lowering both scores and affecting the loan approval process for the co-signer in the future. However, an application with a co-signer will likely be approved by a lender, as any loan mismanagement by the applicant can be handled with the co-borrower.
3. Check your credit history
An applicant applying for a loan with income sourced from a government program should be familiar with their credit history and credit score prior to making any inquiries with a lender. Car dealerships consider an applicant’s credit score and history before determining what they’re eligible for. Regardless if a person receives income from a government program or not, an applicant that has a healthy credit history and good credit score will have a higher chance of being approved for a loan compared to someone with a poor credit score and little credit history.
According to Auto Credit Express, long-term residence stability and “situational” bad credit (i.e. medical issue) as opposed to “habitual” bad credit (i.e. delinquencies caused by late payments) will also increase your chances of being approved by a lender.
Canadians who earn their income from government programs like disability or ODSP shouldn’t feel discouraged when it comes time to apply for an auto loan. There are hundreds of lenders who work with applicants with low income or less than perfect credit to find auto financing that fits within their budget. Although the application process might be trickier for a person who receives 100 per cent of their income from a government program, there are options available for Canadians who have a strong credit history, some kind of garnished income and who agree to apply for vehicle with a co-signer.
If you’re a Canadian with low or poor credit and you’re interested in rebuilding your score, click here to learn more.