Getting a car loan in Canada when you are in a waiter / waitress like position can be challenging. The reason this is challenging is because the hourly wage usually paid to people with these types of jobs is minimum. Waiters and waitresses rely on tips to earn a steady income. When you apply for a car loan in Canada the lender usually wants proof of income on paper. They will look at your recent pay stubs and calculate the minimum wage presented. A lender will usually not take TIPS as a form of income as tips are usually not put into the bank, and tax is usually not paid on tips. Most waiters and waitresses do not declare their tips to the government as a form of income, therefore TIPS are not a provable income. It is correct that some TIP earning clients get approved for loans easily. This would usually mean the client has previous established credit and would qualify for a low interest car loan approval in Canada. If the lender approved the client without needing to prove income then the waiter or waitress is in a great position and has proven to the lender that they can manage credit, and have managed credit in the past. This simply means they have great credit and the lender approved them based on credit.
Where we run into challenges is when the waiter or waitress has less than perfect credit or no credit. Again, the lender will ask for provable income to meet the requirements of that lender. Each lender has different requirements when it comes to earnings. I would suggest that, as a tip earner, put you tips in your bank account when you receive them. Create a track record of money going into your account. When a lender asks for income then provide the bank statements to the lender as proof of tip income. Another way to prove tips is a TIP letter from your employer. Most employers will not provide a guaranteed TIP letter but it is worth a try. Employers are not required to write letters for TIPS. The lender will usually want to see 6 months of TIPS going into your bank account, as well as your regular pay cheque. These 2 items, along with an employment letter would certainly help your chances of getting approved for a car loan.
So to recap….If you are a minimum wage income earner that makes TIPS :
- put your TIPS in your bank account when you receive them(weekly is fine)
- create a track record for 6 months of tips prior to applying for a car loan
- provide pay stubs to lender
- get a proper employment letter from employer(ask for it to state TIPS)
- ask employer for a TIP letter
By doing the above, as a client with no credit or bad credit, it will assist in the approval process.
Read on increasing your credit score here
Just my 2 Cents
-M
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