You've done the hard part. You researched the car, you test drove it, and you negotiated a price that doesn't hurt. You sit down in the Finance Manager's office, ready to sign.
Then they ask: "Can I see proof of income?"
If you can't provide acceptable documentation on the spot, you aren't driving that car home. For self-employed individuals, this is a common trap. Dealerships work with banks, and banks have strict compliance rules.
The Debt-to-Income (DTI) Ratio Problem
Banks approve loans based on a metric called DTI.
Formula: Monthly Debt Payments / Gross Monthly Income.
Notice the word "Gross." Bank statements only show "Net" deposits (money after taxes and expenses). If you show a bank statement, the bank sees a lower number, which pushes your DTI up, potentially disqualifying you from the loan or sticking you with a higher interest rate.
The "Gap" in Documentation
Most dealers will ask for your tax return (1040). That is great, but it only proves what you made last year. If it's October, your tax return is 10 months old. The bank wants to know: "Does this person still have a job today?"
The Perfect Documentation Package
To breeze through finance, bring this exact stack of papers:
- Last Year's Tax Return: Proves historical capability.
- 3 Months of Bank Statements: Proves liquidity.
- Generated Pay Stubs (Last 30 Days): This bridges the gap. Use our Car Loan Pay Stub tool to show your current Gross Income for the current month.
By providing a pay stub, you allow the finance manager to enter your Gross income into their system, giving you the best possible shot at a low interest rate.