It's possible to qualify for an auto loan while collecting unemployment — it depends on your overall credit and financial situation. For example, you may have multiple income streams from retirement plans, small businesses and other investments. Losing a job and collecting unemployment isn't always a hardship in those situations. However, if your only source of income is unemployment, you may find it impossible to qualify for a car loan.
Unemployment benefits are temporary: You receive only a small percentage of your previous salary. Automobile loans usually require payments that last at least three to five years; no traditional bank or credit union is likely to approve such a long-term loan based on temporary unemployment benefits. People eligible for unemployment initially receive benefits for 26 weeks, with certain extensions possible, according to MSN Money.
Even auto lenders comfortable lending to people with poor credit are unlikely to approve a car loan based solely on unemployment benefits, although exceptions are possible. There's always the chance that a used-car dealer could arrange financing at an exorbitant interest rate. The dealer may steer you to an overpriced car and require a significant down payment with an exorbitant interest rate approaching or exceeding 25 percent. That’s typically a good deal for the dealer, even if it repossesses the car just a few months later.
If you're unable to qualify for a standard auto loan because of unemployment, consider existing lines of credit, such as a home equity loan. The bank may not request employment verification if the account is in good standing, making unemployment a nonissue. However, the Federal Trade Commission recommends that you not use home equity loans, if possible: These loans are helpful for emergencies, but they can lead to excessive debt if used unwisely. The Federal Trade Commission warns that defaulting on a home equity loan can lead to foreclosure.
If you're unemployed and need a car, consider buying a car for cash, even if that means scrounging around for a used car that's $1,500 or less. That’s less than a down payment on most cars, and it eliminates adding debt during a tough time. Long-term rentals are another option. Major rental-car companies often offer rentals for two-month periods; you can renew the contract for additional months, if necessary.