A self-employed painter standing in front of his van filled with equipment. A self-employed painter standing in front of his van filled with equipment.
A self-employed painter standing in front of his van filled with equipment.

Are you in the market for a new car? Are you self-employed? If so, you might be anticipating a few obstacles, and not without reason. Self-employment usually adds a few more steps and complications when it comes to getting major loans, and a car loan is no exception.

A good broker can help you secure a self-employed car loan that works for you, but it also helps to know what this process entails and what you can do to make it run smoothly.

That’s where the following guide comes in.

Understanding the Challenges for Self-Employed Borrowers

You can still get a car loan if you are self-employed, but the process is a little different. You’ll typically be asked to provide more documentation, and depending on your situation, you may have fewer options.

Preparation is key to avoiding disappointment and delays, so if you’re considering a self-employed car loan, keep the following in mind.

Documentation and Income Verification

The car loan type and the lender’s requirements will determine exactly what documents you need.

If the car will be used for business purposes, you can apply for a commercial hire purchase agreement or Chattel Mortgage. As these are not regulated by the National Consumer Credit Protection Act (NCCPA), the process is usually simpler.

If the car is for personal use, you need a consumer loan. These loans are regulated to protect the consumer but can also complicate things for self-employed individuals.

Typically, you’ll need to provide proof of income via tax returns and financial statements. Some lenders will also perform an affordability assessment and request bank statements and detailed income/expenditures, making sure you can afford the loan.

Demonstrating Income Stability and Repayment Capacity

You must show that you have a strong financial history and can make repayments. So, keep detailed reports and try to improve your creditworthiness.

The first step in this process is to check your credit report—the lender will review it and use it to influence their decision, so you might as well get a head start.

A couple of quick ways to improve your credit score is to dispute inaccuracies/mistakes and pay down more debt.

Most of your credit score is based on payment history and credit utilisation. The former looks at your successful payments and settled accounts as well as your missed payments and defaults. You can improve your payment history by making payments consistently and removing negative marks where possible.

As for credit utilisation, it compares available credit to used debt. So, two credit cards with combined limits of $20,000 and debts of $10,000 equate to a 50% utilisation. Improve it by clearing more debt and keeping cleared credit cards active.

The sooner you start this process, the better. Credit history improvements occur gradually and while it takes minutes to pay down debt, it could be weeks before those payments appear.

Selecting the Right Lender and Loan Term

An experienced car loan broker can help you to find the perfect self-employed car loan. At Fox Finance Group, for instance, we work with over 50 lenders and check hundreds of products to match your needs to the perfect loan.

If you’re doing the work yourself, it can be tricky, but it’s important to adopt a similarly dedicated and meticulous approach:

  • Look for lenders that specialise in car finance for self-employed borrowers
  • Compare interest rates and loan terms
  • Check the fees and penalty rates
  • Search for the company to confirm it is legitimate and well-reviewed
  • Look at flexibility options, including aspects like overpayments and balloon payments
  • Consider adding a larger deposit

The apparent instability of self-employment makes lenders wary. To win them over and get the best deals, you must present yourself as someone with as little risk as possible. Proving your income and affordability goes some way to doing that but increasing your deposit has an even bigger impact.

A higher deposit means a smaller loan, which in turn means less liability. Of course, getting those funds is easier said than done, but here are a few things that could help:

  • Budget: Create a budget and record your incomings and outgoings.
  • Reduce Expenses: Cancel unwanted subscriptions, swap brand-name goods for generic ones, and cut back on your food waste to save money.
  • Time: Give yourself time to save. There’s no rush. As long as you’re budgeting properly and putting money aside, your situation will keep improving.
  • Sell: Do you have any old electronics, DVDs, games, instruments, or clothes that you don’t need? Thanks to an assortment of marketplace apps and sites, it has never been easier to sell up.

Engage a Car Loan Broker for Expert Assistance

There’s clearly a lot to consider when it comes to getting a car loan as a self-employed individual. You must compare companies, check rates, think about optimal deposit amounts, and prepare documents, and that’s before you even find time to shop for a new car.

Working with a broker will help you to cut through all this noise. They know the market and have a good idea of which lenders and loan products work best. They have also helped countless self-employed people like yourself. A broker can make a massive difference and ensure you get what you need without the added stress.

Alternative Finance Options for Self-Employed Individuals

Is the documentation a problem? Consider a “no doc” car loan. As the name suggests, these loans don’t require tax returns, bank statements, and other financial documents. You can also opt for a Chattel Mortgage, which is a type of secured car loan. However, both options assume the car is a business asset, which means more than 50% of its use is for business reasons.

Peer-to-peer (P2P) platforms could provide the funding, and there is also something known as a novated lease. In the case of the latter, you’re creating a three-way agreement between you, a finance company, and your employer whereby the employer agrees to pay the finance company. It won’t work if you’re a sole trader, but it might work if you pay yourself a wage.

Dealerships also have car finance options and if you have any home equity, you can use a line of credit loan or redraw facility.

Consult with a professional financial advisor for more information on these products.

Are you looking to get a self-employed car loan

To summarise:

  • You can get car finance if you are self-employed
  • The process is not as straightforward as lenders see you as a higher risk
  • You will be asked for proof of income and employment
  • You may need financial statements and bank statements
  • Putting up a larger deposit can make a big difference

Contact one of the lending specialists at Fox Finance Group to start your search. Enquire here now.

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