Getting your car financed as a self-employed seems like “pulling out all the stops”. You will have to “jump through hoops” to get your application approved from a direct lender. One of the reasons for a lot of paperwork is that your income is not stable. The lending decision is much easier when you receive a fixed pay every month. The onus of proving your repaying capacity is on you, so provide as many documents as possible to ensure you can repay the debt. Demonstrate your repaying capacity even if your business income dips in a particular month.
It does not have to be difficult to get your car financed when you are self-employed, but sometimes, your overall financial condition does not show you the advantage. Your credit rating may be poor, and lenders may not be satisfied with your income sources.
If that is the scenario, you may be asked to arrange a guarantor. It lowers the risk of a lender as they can call on the guarantor to pay off the loan in case you make a default.
Documents that you must have to seek approval
Your car lender would want to check a few things to ensure you are the right fit. Your bank statement is one of them to gain insight into average spending. Does your budget have the scope to make payments along with other recurring expenses? In addition, you will need to submit:
Your bank statement will tell you about the deposit and withdrawal details, but lenders would want to see how much you earn, and to this end, they need to evaluate your income statement. Since you are self-employed, your personal credit report will be used to see your past payment behaviour. In addition, your lender will need the latest trading accounts. They will give an idea of how much you can repay.
Ways to finance a car
There are two best ways to finance a car for the self-employed. You can have your car financed from a direct lender or an auto dealer. Direct lenders are more favourable because they will likely loan you at affordable interest rates. Dealership financing involves hire purchase (which is similar to an auto loan from a private lender) and personal contract purchase (which is ideal when you operate a fleet or need a car for a short period of time).
Ways to improve your chances of getting your car financed quickly
Here are the ways to increase your chances of approval for car finance as a self-employed:
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Improve your credit score
Keep your credit score in good condition. Even a fair credit rating will complicate borrowing for you. If you have a bad credit report, put off your car purchase and, in the meantime, fix your credit rating. Though you may not have older inquiries and defaults disappeared, they will be less of a concern for your lender.
A few auto lenders accept borrowers with bad credit ratings, too. Research about those lenders. Seek bad credit car finance instant decision from multiple lenders in the UK, so you know how much you are about to be charged. You can also get quotes from car dealers and compare them with those of your lenders. It is normally suggested doing up your credit score if you are applying for a car loan as a self-employed.
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Put down a larger deposit
You cannot get approval for a car loan without a down payment. The ideal deposit size is up to 10%. It should be double if you do not have a stable income. A bigger deposit size will reduce monthly payments because the loan amount will be lower. Your lender will find you less risky. However, if your credit rating is not up to snuff, your chances are bleak despite a larger down payment.
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Apply with a guarantor
Some car lenders also provide guarantor car loans. It can increase your chances of being accepted, provided the guarantor has a good credit rating and a stable income source. A guarantor mitigates the risk of a lender as they can rely on them to repay your debt if you refuse. Bear in mind a guarantor is the last resort.
In case of a default, your lender will chase you and make all possible efforts to get payments from you. Remember that missed payments will wreak havoc on your credit report and complicate things for you.
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Be realistic and transparent
You should provide accurate income details. Most lenders want to see a decent credit report, stable income and repaying capacity, but above all, they want to see how loyal you are to your financial commitments. A genuine borrower never overstates their income details. Demonstrate a true picture of your expenses.
Although lenders run an affordability check, you cannot completely rely on their decision. It is, ideally, your duty to determine whether you can afford to pay back the debt. Never apply for a car loan when you are slightly doubtful. Since a car loan is a long-term commitment, you should take into account the possibility of a flat business. Make sure you will have an alternative to repay the debt.
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Submit a joint application
Despite all the abovementioned ways, you can struggle with getting your application approved – after all, each lender has its own way of gauging the risk involved in loaning you. Apply with a co-applicant.
A joint car loan might improve your chances because both applicants will be responsible for partial or full payment. If one of you has a bad credit score, the other one must have a good credit rating. You will more likely get approval for affordable rates when you both have good credit ratings.
The final word
You can finance your car through a dealership or an auto lender. However, you will have to go through additional formalities and paperwork. Keep your credit score good and arrange a larger deposit size. If it does not work, you should either arrange a guarantor or borrow money jointly.
