Get an Auto Loan Quote

Can You Get a Car Loan if You’re Retired?

Yes, it is possible to get a loan if you’re retired, even if your credit score is not what it used to be. You will face two main hurdles during the loan approval process, though.

Considerations for Retiree Car-Buyers

Lenders use a set of guidelines to determine who they lend money to. While these guidelines vary somewhat from one lender to the next, many have common aspects. The two areas where a retiree will have difficulty are in the gross income and debt-to-income ratio guidelines.

Most lenders require that you have a consistent gross monthly income of $1,400. Some may accept $1,250 per month. For a retiree, the income considered will be any income from a job, Social Security, pensions, and any investment income (a 401k for example). The key is that you can furnish some type of verification, i.e. pay stubs or tax returns. Fixed income is typically stabler than income from a job, so the source of your income shouldn’t be an issue as long as it’s:

  • Sufficient:  $1400 per month (gross).
  • Verifiable:  pay stub, tax returns, bank statements.

The next area where a retiree may run into difficulty is with their debt-to-income (DTI) ratio. Major lenders want to see that your DTI is less than 36 percent.  Exceptions are often made for individuals who have a credit score above 699. Expenses considered to be part of your DTI are rent/mortgage, loan payments (including the payment on the loan you are applying for), utilities, insurance, credit cards…actually any recurring monthly payment can be considered. With a monthly income of $1,250 you can only have $450 going out each month. At $1,400, your allowable monthly cash outlay only increases to $500.

AARP Car-Buying Discounts

There are no official “AARP auto loans,” per se, but many dealerships have member-only price sheets for AARP members, as well as special discounts and incentives. For this reason, don’t forget to bring proof of membership with you to the dealership, or to identify yourself as an AARP member. It could save you up to $300 on your purchase. Go here to learn more about the AARP Auto Buying Program. If you find a car you like, you can even print a savings certificate before you head to a participating dealership.

Bank Alternatives

Hopefully you have your accounts with a trusted bank or credit union you have been using for years. This is the best source for your auto loan, as even if you don’t quite meet the minimum guidelines, the loan officer can find ways to work with you. However, if can’t approved due to credit or income issues, don’t panic.  There are other alternatives.  For instance, there are auto lenders that specialize in higher-risk lending scenarios, such as poor credit, high debt-to-income, or low gross monthly income.

You will need to expect a higher interest rate and shorter repayment terms than you may be accustomed to, as a means of compensating for the higher risk associated with your loan. Interest rates can be as high as twenty percent and you may only have 30-36 months to repay the loan.