Many questions about auto loan, first time buyer

[cet2062]

Hi All,

First let me say thanks for taking the time to read my post! 

So here is the deal, my parents are not qualifiying to get a car at this time and my mom is in need of a car. My dad purchased me a car a year and a half ago, a 2004 honda accord! Well this is the big hold up actually, since he is self-employed the banks can't justify him having two loans in his name. He is a mason and reports that he makes much less, according to his schedule C after deductions and losses. The banks will not approve him even though his gross before deductions (legal and provable I might add) is about 58,000! But don't get me started on that! 

Anyway, I've had credit since June of 2011. I got my first credit card of $600 (BofA), since then I've been able to get a Belk Rewards card $200 and a Cap. One Journey Card $300. The only card that has a balance is the BofA card, and I'm currently trying to get that down! I've never been late and make well beyond the min. payments each month. Here comes the part that hurts me, my main job is being a nanny. I started in August making on average, 700/month from the family. She didn't give me a 1099 or anything and since this is my first year doing this I was not sure if I had to claim this on my taxes. I had another job in which I received W2s but this shows me making 4100 for the whole year, when in actuality I made a lot more due to nannying (I was in high school this past year). My bank statements can prove about $1000-1100 for the past few months, with this month being less since I didn't work as much. I also quit my other job (where I received my W2s from due to some drama and school related issues). 

I've applied and been told I'd be approved if my taxes showed that I actually made as much money as I do. 

I've not tried the local credit union but before I go anywhere else I'd like some input, what do you think?

I'm not looking for some extremely expensive car. At first I was hoping to get in with Ford Financing with their student programs and First time buyer programs. However after talking to a few people at dealerships I've just given up hope on that! 

I've found a few cars in the $12,000 range that would be a good fit for me. My parents in all actuality will be paying for this but I can't very well tell this to banks, can I? I've got a trade in which will hopefully get me about $1000, and could possibly add $1000 to that if necessary. 

Any input would be helpful! 

[StartingOver10]

Well, its very good that you are learning about your credit this early.

You have 3 issues that pop out immediately: 1) thin credit file; 2) small down payment and 3) no verifiable income. Getting a lender to loan you money is not going to happen under these conditions. However, you can change these items over time.

1) CREDIT: You are doing the right thing with your credit file by having accounts now. Just pay on time as you are doing and you will be fine in a few years after you have graduated school and gotten a permanent job. I assume the nanny job is something you are doing while you are in school. Please correct me if I'm not reading that part of your post correctly.

2) DOWN PAYMENT: You mentioned that you might have $1000 available from your trade-in and maybe could put down another $1000. If you had a minimum of 20% down, it might be possible for you to get a vehicle in your name, but in the lenders eyes you haven't established a long enough credit history and your income would not support a $12k purchase, even with $2k down. However, you have only been paying on your vehicle for 18 months so you may not even have the full $2k depending upon the terms of the loan you are currently paying. If you still owe on that car, it is unlikely you have equity in it at all. Remember the dealership is going to give you wholesale value at best.

3) INCOME:  One of the things that I see right away is that you do not have the income to support any type of car payment. The income that any lender would use is the actual VERIFIABLE income you report to Uncle Sam. [To answer your tax question, 1099 income is income you are to report on your tax returns. As you can see, there are disadvantages in under reporting your income. Also severe consequences.] Your Father is apparently running into the same issue. One of the important things is the lender looks for enough reportable, verifiable income to support the loan payments. If you have 1099 type income, you will always need to supply your tax returns to show your gross income and all of your expenses so they can see what you net. These tax returns are then checked against the ones that are filed with the IRS through a form called a 4506 (tax verification form).

Read the form to get an idea of what the lenders look for in your debt to income ratios. Also, because you live at home/dorm there are added issues of you not paying rent.

It is best to not incur huge debt for a vehicle while you are in school anyway. Get a vehicle for cash, an inexpensive one for $4k-$5k and continue to build your credit while you are in school. There is plenty of time after you graduate and get into your career to saddle yourself with vehicle debt.

[nomoore]

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@cet2062 wrote:

He is a mason and reports that he makes much less, according to his schedule C after deductions and losses. The banks will not approve him even though his gross before deductions (legal and provable I might add) is about 58,000! But don't get me started on that! 

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I would certainly feel bad if my parents bought me a car and then couldn't buy one for themselves when they need it. I'm sorry you're going through this.

As for your dad's income, it sounds like you are saying the money he takes in from his business is about 58,000 a year. Then he deducts business expenses and such on the schedule C and the remainder is what is considered his income. If this is how everything is being figured then there is nothing to "get started on". This is the way stuff works. HIS income is what is left over after the business expenses. If this is not the case, I don't want to know any more. 

As for your credit situation, you have a thin credit file with no installment loans and a short history. If your payment history is good then your credit score shouldn't keep you from getting a modest loan. You would definitely need as much down-payment as you can get and you of course have a lot of building to do to get good APRs.

As for your income, the situation isn't the best for sure. You no longer have the job that gave you easily verifiable income. You haven't claimed the other income on your taxes properly and so it is making it difficult to verify that income. The fact that there wasn't a 1099 filed is not an excuse. You can and should claim that income. If you didn't know, now you do. If I were a lender I would definitely want the income claimed on taxes to consider it. Without that income reporting to the IRS you show that at best you are still very inexperienced and thus a risk. At worst you could be intentionally trying to evade taxes thus dishonest and a higher risk (don't take that as an accusation please). That being said, if you shop around at credit unions you just might, maybe find one that will accept bank statements as proof of income, but that is doubtful.

Now comes the important issue: -- Do you really want to get this loan for your parents?

I'm sure you feel that they are great parents since they lovingly bought you a car, and possibly many other reasons. And now, since they did that they can't get the car that they need. you probably feel that you should help any way you can. That caring, giving attitude is commendable! ------ But here's some things to consider.

If you get this loan for them YOU will be responsible for the payment. If your dad is out of work and can't make the payments YOU will have to make payments otherwise YOUR credit will be hurt, instantly and badly. And that damage will remain for years. Are you ready to take on that responsibilty and leave the space in your budget open for that possibilty? Even if your parents have superb credit, stuff happens and life circumstances can change in an instant. For example what if someone in your family gets injured or sick and the family ends up having to pay huge medical bills? If you get this loan it is YOUR loan and YOUR responsibility to pay it, period. If your dad can and does make the payments for you then GREAT! But what happens if he can't?

Bad credit can cost you thousands of dollars in higher APRs on future loans and credit cards. It could cause you to have a higher car insurance payment. It can cause you to have more "security deposits" on some utilities, cell phone service, etc. I guarantee, bad credit will cost you a lot.

[webhopper]

You need to file taxes in my opinion... you can likely claim tax exempt status, especially if your parents are claiming you as their dependent. Check with them on that. If you didn't file taxes on this money, then the auto loan may not happen. You can file, and file the money as "tips / other wages"

Have you thought about giving your Honda to your mom, and picking up something else to haul yourself around in for a while?

Check with your parents and maybe a tax person?

[cet2062]

Thanks everyone for the replies. I guess it's just not in the cards right now! 
And as to the last post, that is actually what I was going to do if I were able to get a relatively cheap auto loan. The plan would be to give my mom the honda (she loves it anyway) and then get into a gently used car if it were a possibility. The trade was not going to be the honda but another car we have that is not yet a "junker" but will be there soon because we can't afford to keep fixing it everytime it breaks down!

As for the filing taxes part, I did file the taxes, I just only had my W2 from my other employer and not the one where I make the bulk of my money. Being a student, having two jobs is not always that uncommon! I talked to the credit union today in my town and am hoping for at least maybe they can give me a personal loan which will give me some installment loan history, but not such a big amount.

 Thanks again for the replies! I'm just impatient and my parents could use the help!