Child Support and Second Chance Car LoansIt's not uncommon in today's economy to have less-than-perfect credit. Financial difficulties plague all of us at some point in our lives, making loans for cars and homes harder to secure, and low interest rates seemingly out of reach. Everyone's had to tighten their budget. Many have had to lean heavier than usual on their credit, getting into trouble with the banks.
There are ways to restore credit, so called "second chance" loans. But what happens when you throw child support payments into an already shaky credit score?
Child support payments can make a second chance auto loan harder to come by - even if you are on the receiving end of those payments.
Parents receiving child support payments could reasonably expect that income could positively impact their debt-to-income ratio, thus making them a better credit candidate. Here's the catch, though: child support income can't be garnished, so second chance auto lenders could be hesitant to consider it as part of their overall income. In the lender's eyes, that child support income does not shine in a favorable light.
The good news is there are specific conditions where a lender may consider your loan if you're getting child support payments:
- If you, the borrower, have additional income that can be garnished
- If you have long-term residence stability (you've lived at your current or past addresses for several years); and "situational" bad credit versus "habitual" bad credit. Situational bad credit can be brought on by something like a medical emergency; habitual bad credit means you never pay your bills on time, for example.
- If you can provide proof of your child support income, like copies of the court order or divorce decree outlining the amount and length of your payments.
What about parents on the other side of the coin - the ones paying child support?
When you are on the paying side of the child support, owing arrearage can prevent you from getting a second chance auto loan. Why? Simple. People who avoid making child support payments are higher credit risks: they tend to jump jobs frequently and credit bureau statistics show they will not be likely to make their loan payments on time.
As we've seen, child support can complicate getting a second chance car loan. A borrower's best chances revolve around catching up on payments and consistently making them timely, and have at least one year on your current job. This shows stability. Also, responsibility with child support payments can show lenders you'll be responsible with a car loan, too.