Can You Get a Car Loan If You Are Retired?

by Ciaran John

    You can finance the purchase of a car with a loan from a bank, credit union or an investment firm. Underwriting rules vary between lenders, but loans are available to both employed individuals and retirees. However, a number of factors affect your ability to qualify for a car loan, and this can create different issues for retired people and those who are currently employed.

    Debt-to-Income

    Lenders use an equation called a debt-to-income ratio to determine whether you can afford to take out a loan. Your lender divides your total monthly debt payments into your gross monthly income to determine the percentage of your income you spend on debt. As a retiree, your income includes Social Security income as well as any funds you get from pensions. You can also qualify for a car loan on the basis of income from other sources such as annuities, dividends or rental income. The debt side of the equation includes your mortgage, credit cards and any other loans you currently have. Your status as a retiree will not ruin your chances of a getting a loan, but minimal income coupled with large debts could put the kibosh on your plans.

    Credit Score

    Your credit report provides lenders with an insight into your past borrowing history. Lenders obtain credit reports from Equifax, Experian and TransUnion. Each of these firms uses a scoring system that ranges from about 300 to 850, with higher scores being associated with low-risk borrowers. Although your financial circumstances may have changed since you retired, lenders view your credit report as being indicative of your character. If you paid your bills while you were working then you are likely to keep paying your bills as a retiree. Regardless of your age and work status, you tend to get the lowest rates on car loans if you have a credit score higher than 740.

    Collateral

    When you finance a vehicle, your lender places a lien on you car. The lien placement gives your lender the right to seize the car if you default on the loan payments. Cars depreciate in value over the course of time, and most lenders place age restrictions on financed cars. You cannot finance a car that holds little or no value because your lender could not recoup its losses by selling the vehicle if you defaulted on the loan. Simply put, your car's age rather than your age could hurt your chances of getting a loan.

    Considerations

    Legally, lenders cannot discriminate against borrowers based on factors such as age. However, you cannot finance a car unless you have a valid drivers license, and 30 states have additional requirements for older drivers, including retirees. In Maryland, drivers over the age of 40 are required to undergo eye exams when applying for license renewals. In Georgia, renewal terms for drivers licences are reduced when you reach the age of 59. Therefore, while car loans are readily available to retirees, drivers licences are sometimes harder to obtain.

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    About the Author

    Ciaran John began writing in 1994 with contributions to "The Hourly Press" and "The Sawbridgeworth Observer," and has since written for many online and print publications. He has 12 years experience working for financial services companies as a business banker, lender and investment representative and spent four years working in human resources.

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