While self-employment allows for flexibility, and there’s really no limit to the income you can earn, there are some potential drawbacks when it comes to getting an affordable vehicle loan.
Applying for car finance when self-employed isn’t impossible, but it does take a bit of “know-how” to make sure you can prove your income and that you’d be able to pay off a loan in the agreed timeframe.
With that in mind, let’s take a look at a few things that can help get you the best car finance for self-employed individuals.
Even though self-employment is becoming more popular across the world, some lenders still question the stability of certain jobs. For example, if you’re a freelancer who works on a gig-by-gig basis, you might make more money for one month than the next. While you know you can make it work, pay all of your bills, etc., a lender might not like the pattern they see.
So, you might be asking yourself, “can I get car finance?”. The answer is yes, even if you don’t necessarily make the same amount each month, you can still get the financing you need to secure the vehicle you want.
One of the best things you can do is to prove to a lender that you have a steady income. You can show that to them through things like bank deposits, check slips, or even bank statements if some of your clients directly deposit funds into your account. Bringing several months of bank statements can actually be a good thing that shows lenders you make a consistent amount of money and you’re able to live comfortably.
Car finance and home financing aren’t that different. Bringing a proof of residence to your lender is a great way to show that you’ve consistently been make mortgage repayments, or rent payments each month.
When a lender sees that you’re responsible enough to pay for a home, they’ll have more confidence in knowing you can also pay for a car. You can also bring in monthly utility bills to show that those are all covered in full, too. Showcasing your financial responsibility is crucial in making sure you get the loan you need.
Like bank statements and other ways to prove your income, you can also show your lender past tax forms. If you have several years of them from the time you’ve been self-employed, you can prove to them that your pattern of income has been consistent and stable, even if you don’t make the same amount of money each month.
The longer the history that can be provided to prove your income, the better. Taxes are a great way to do that since they are official documents that can be trusted and easily looked over.
Taxes also establish a work history, which is another good sign for lenders. The longer you’ve worked, the better, even if it’s been under self-employment. It’s another sign of stability that lenders know they can depend on, and it shows another level of responsibility that will make them more willing to trust you.
This might seem obvious, but having a good credit score can be a huge component when it comes to car finance. That’s true whether you’re self-employed or not!
There are plenty of free websites where you can check out your credit score. If it’s lower than you’d like, you can boost it by always making sure your bills are paid on time and keeping your debt to a minimum.
Finally, one of the most effective ways to secure a loan for yourself is to put together a strong down payment before you go to speak to a lender. If you have a certain vehicle in mind, a good rule of thumb is to have anywhere from 5-10% of a down payment ready.
But, if you can save up more than that, it’s even better! Not only will your monthly payments be less (and your interest rate will likely be lower), but you’ll prove to your lender that you already have a sizable chunk of money ready to go, and you’ll be able to secure more for monthly payments.
Saving up for a down payment can be difficult for someone who is self-employed since you’re likely have to budget your money each month to pay bills, etc. But, anything you’re able to put away toward the car you want will help and can allow you to get the financing you need much faster.
So, have you picked up on the pattern? You can absolutely get car financing when you’re self-employed. In fact, because it’s becoming so common across the globe, more lenders are going to have to develop more of an understanding of what self-employment looks like and how it can impact someone’s income on a monthly basis.
Until then, the best thing you can do is to prove that you’re a responsible, stable person who makes enough money each month to live comfortably. Showing some of the things you’re currently making payments on while showing your work history with some consistency is the best way to do just that.
It might seem a little overwhelming to have to “prove” yourself to a lender, but if you’re in need of a car, letting your financial numbers speak for themselves is necessary to get what you want.