What Are Stips on a Car Loan?
What are stips on a car loan?
Stips, short for stipulations, are the documents a lender requires before it will actually fund an approved car loan — typically proof of income, proof of residence, proof of insurance, and 5 to 8 references. An approval is conditional until they clear, which is why most subprime deals that collapse collapse at this stage rather than at the credit decision.
Key takeaways
- An auto loan approval is conditional; the lender does not send money until every stipulation on the approval is satisfied.
- The most common subprime stips are proof of income, proof of residence, proof of insurance, references, and a verification phone call to your employer.
- Pay stubs generally need to be recent and consecutive, and the lender is verifying gross income from one primary source rather than total household income.
- Self-employed and 1099 buyers are usually asked for one to two years of tax returns or several months of bank statements instead of stubs.
- Gathering stips before you shop is the single most effective thing a subprime buyer can do to keep a deal from falling apart after signing.
What does "stips" mean?
Stips is short for stipulations: the list of documents and verifications a lender attaches to an approval before it will release the money. It is dealer-and-lender shorthand you will hear across the desk, usually without anyone explaining it.
The important part is what it implies. An auto loan approval is not a decision that you got the loan. It is a decision that you get the loan if everything on the application turns out to be true and provable. The stips are how the lender checks.
Which stips do subprime lenders ask for?
More than prime lenders do, and that is the entire difference. A prime borrower often signs and drives with nothing more than a license and insurance. A subprime file gets verified.
| Stipulation | What satisfies it | Common snag |
|---|---|---|
| Proof of income | Recent consecutive pay stubs with year-to-date totals | Gaps, overtime that inflates a short window, cash income |
| Proof of residence | Utility bill in your name at the address on the application | Bills in a partner's or parent's name |
| Proof of insurance | Binder listing the vehicle and the lender as lienholder | Full coverage costs more than the buyer budgeted |
| References | 5 to 8 names with working phone numbers | Numbers that go unanswered or are disconnected |
| Employment verification | A phone call to your employer's HR or a supervisor | Small employers who will not confirm, or nobody answering |
| Proof of phone | A bill in your name matching the number given | Prepaid accounts with no billing statement |
The pattern behind the list is that the lender is confirming two things: that the income is real and repeatable, and that you can be located. Everything on the list serves one of those two purposes.
Why do deals die here instead of at approval?
Because approval is a decision about your credit file, and funding is a decision about your documents — and those are different tests.
A lender can approve a 520 score without hesitation and then decline to fund when the pay stubs show $1,100 a month against a $480 payment, or when six of eight reference numbers are disconnected, or when the employer will not verify. Nothing about the credit decision was wrong. The file simply did not support it.
This is also why the answer to "what score do I need" is less useful than it sounds. The score gets your application to a lender. The stips decide whether the money moves.
What if I am self-employed or paid in cash?
You are not disqualified, but you are on a different track, and it is worth knowing that before you are sitting at a desk.
Instead of pay stubs, expect a request for one to two years of tax returns, or three to six months of bank statements showing consistent deposits. Lenders generally underwrite from net income after business expenses, which is often well below what a self-employed buyer thinks of as their income.
Cash income that never touches a bank account is the hardest case. If deposits do not exist, there is nothing for the lender to verify, and no amount of explanation substitutes. If you are in this situation and planning to buy in the next several months, start depositing income now so there is a record to point at.
The one thing worth doing before you shop
Assemble the stips first.
Most subprime buyers walk into a dealership, spend three hours picking a car and negotiating, get approved, and only then discover they need documents they do not have with them. The deal stalls, the approval ages, and sometimes the terms change.
Bring the folder with you: recent pay stubs, a utility bill in your name, your insurance information, your phone bill, and a written list of references with numbers you have actually confirmed are working. It takes an evening, it costs nothing, and it removes the most common reason these deals fall apart.
And do not treat signing as the finish line
Until the lender funds, the deal is not done. If a dealer lets you take the car before funding is confirmed — sometimes called spot delivery — you are exposed to being called back in to re-sign at worse terms. Ask directly whether the loan is funded or still conditional, and get the answer in writing.
Common questions
What does stips mean at a car dealership?
It is dealer and lender shorthand for stipulations: the conditions attached to an approval. Until they are satisfied and the lender funds the deal, the approval is not final, even if you have already driven the car home.
What counts as proof of income for a car loan?
Usually your most recent consecutive pay stubs showing year-to-date earnings. If you are self-employed or paid on a 1099, expect a request for tax returns or several months of bank statements instead.
Why does the lender want references?
Subprime lenders commonly ask for 5 to 8 personal references with working phone numbers. They are confirming you are locatable, which matters to a lender pricing for the possibility of having to find the vehicle later.
Can a deal fall through after I take the car home?
Yes. If the stips do not clear, the lender can decline to fund and the dealer will ask for the car back or ask you to re-sign at different terms. Get funding confirmed in writing before you rely on the vehicle.
How long do I have to turn in stips?
Usually a few days to a couple of weeks, depending on the lender. Delays are risky because approvals expire, and a re-run application can come back with different terms if anything about your file has changed.
Sources
- Consumer Complaint Database — Vehicle Loans — Consumer Financial Protection Bureau
- Auto Loans Research Reports — Consumer Financial Protection Bureau