Will incorrect income on car application jeopardize loan?


Opening Credits
Columnist Erica Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for

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Question Dear Opening Credits,
I got financing for a car through a small dealership in California. It turned out that in the monthly salary space on the credit application, the monthly salary was $2,340 more than what I make at my job. Now, I receive money from my family that could account for the discrepancy, but this money is not a salary. It was however placed in the salary column and not in the other income space. Could this cause trouble down the line? Should I call the bank myself to fix the error, or should I leave it alone and just make the payments?  – Tee


Dear Tee,
As long as you can make the payments as agreed, all is well. It doesn't matter that the amount you receive from other people was erroneously added to your salary on the application. You were already approved for the loan, so as far as the finance company that you used via the dealership is concerned, you’re good to go.

What will be a problem is if the family funds are not guaranteed and then dry up. Lenders want to be sure that you can handle the monthly payments since they could lose money if you don’t pay, but the situation would be far worse for you. Without the means to easily send complete payments on time, you would struggle.

If you fall behind, the loan will be in default and the lender bears the right to seize your vehicle. At that stage, your problems would intensify. First, you could end up without a car, thus making it more diffract to get to work and earn money. Second, if you couldn’t meet all the missed payments plus the fees associated with collection and repossession, the vehicle would be sold at auction. You could wind up owing a large deficiency balance if the car is purchased for less than the outstanding loan balance. And third, your credit report would take a hard hit. The history of delinquent payments, default and new debt would be listed on your file and negatively factored into your credit scores -- making it much harder for you to qualify for any new credit product, including a car loan, in the future.

So what to do now?

Ask yourself if you can really afford to make the payments, not just now but for the number of years that you’ll have the loan. If you know your family will continue to help or if you can earn the difference on your own, there is nothing more for you to do. Just make your payments on time and your credit rating will benefit by your responsible actions.

In the event that you can’t afford the loan, it is essential that you take early steps to mitigate problems. Contact the financing company before you miss a due date. Most lenders will do whatever they can to help good customers keep accounts in positive standing, so do not delay. For example, you may be allowed to defer payments for a short time so you can increase your income on your own and get back on track. Another option may be to refinance the loan so that the term is longer, but the payment lower.

But know, too, that you can always sell the car (provided you can sell it for what you owe on it) and buy a vehicle that is within your true financial capability. It may not be new or beautiful, but escaping a huge commitment will alleviate pressure. Even better, it will ensure you’re not left with a ruined credit rating and a massive deficiency balance bill.

See related: Buying a car with no credit: 6 things to know, New to credit? Build score with car loan, secured card

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Published: September 7, 2016

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Updated: 10-25-2016

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