Can You Get a Car Loan while on Workers' Compensation?

Get Car Financing
Even with poor credit.

By

Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - March 6, 2019

In order for workers’ compensation to count as income when qualifying for a car loan, a few other factors have to come into play, such as payment duration and employment. Though workers’ comp may replace some of the income you're missing while out of work due to injury, it doesn't represent the same kind of long-term stability with lenders as employment income does.

Auto Loan Income and Employment Requirements

It's no secret that different lenders have different requirements when it comes to approving car loans. You might also know that some auto lenders have the ability to provide loans to people with bad credit that other lenders can't. But do you know why?

Much of this comes down to how lenders approve their loans. For this, lenders typically fall in two broad categories:

  • Traditional lenders tend to base car loan approval most heavily on credit. If you have an excellent credit score and a good credit history, traditional lenders don't look much farther than whether or not you can make your monthly payment – regardless of where your income comes from. If your credit and income level doesn't meet their threshold, you're not getting a loan from them.
  • Subprime lenders, on the other hand, look beyond credit to approve borrowers with less than perfect credit. Because consumers that fall under the umbrella of bad credit don't always have solid credit scores or stable credit histories, subprime lenders look at their income, employment, and residency to provide some of the basis for loan approvals. These lenders are typically willing to approve a wider range of borrowers than traditional lenders.

As a bad credit consumer, you generally have a better chance for an auto loan approval when you work with a subprime lender. These lenders have a number of requirements and qualifications that you're asked to meet to prove you can afford your monthly loan payment and that you have the ability, stability, and willingness to successfully complete a car loan.

Typically, the income requirement for a bad credit auto loan is a minimum gross (pre-tax) monthly income of $1,500 to $2,000. For proof, you have to provide a pay stub from the past 30 days that shows year-to-date income – something you can't do if you're receiving workers’ comp. However, just because you're receiving compensation doesn't mean you can't qualify.

Qualifying for a Car Loan with Workers’ Compensation

This is where the other factors come into play with workers’ compensation, especially if you have bad credit. Because you can't pay back a loan without income, lenders typically need to see that the income you're getting covers the duration of your loan term.

For borrowers with poor credit that are on workers’ comp, this means one of two things must also happen:

  1. Long-term disability – Your disability payments must cover the duration of your loan term. This means having permanent partial disability or permanent total disability. The limitations on these types of workers’ comp are set by the state you live in, and, contrary to popular belief, don't mean that you're unable to work at all. It does, however, mean that you're unable to work in the same capacity that you did before injury, or that you're unable to work without restriction.
  2. Retained employment – In order for workers’ compensation to be considered as income, you're going to have to have retained employment. If you've not been able to keep your job, even with permanent disability, your workers’ compensation income isn't likely to continue indefinitely. Even if it does, workers’ comp income isn't considered taxable income, which is another general requirement for subprime lending.

Keep in mind that even if you meet all the requirements for a bad credit car loan with workers’ comp payments, you can’t get an auto loan without another form of taxable income.

You can also improve your chances of qualifying for a car loan by making a down payment. If you put more money down than the lender asks for, then your chances of getting approved are better. Additionally, you could get a spouse or family member to be a co-borrower on your loan so you can use their income to help you qualify.

But, in order to have the best chance at getting approved for an auto loan, you need to go through the right dealership.

Finding a Dealership for Your Next Car Loan

The majority of dealers aren't able to assist people with poor credit. If you need a car loan with bad credit, you likely need a special finance dealership and their subprime lenders.

Finding one of these dealers near you can be a challenge, but CarsDirect is here to help. We're teamed up with a national network of these dealerships, and we want to get you connected to one in your local area. Fill out our secure and no-obligation auto loan request form to start the process today.

Need a Car Loan?

It only takes a minute.

Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


Search New Cars by Loan Payment »

View estimated loan payments based on local rebates and financing offers.

Loan approval is not guaranteed and is subject to credit application and approval of the lender. Individual loan terms may vary. Use of this website constitutes acceptance of CarsDirect.com's Terms of Use, Disclaimer, Privacy Policy, and Cookie Policy.

Privacy Policy|Terms of Use|Cookie Policy|Disclaimer
COPYRIGHT 1999-2019 MH Sub I, LLC dba CarsDirect.com