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Everything you need to know about self-employed car financing
With self-employment on the rise in the UK, we thought we’d look at self-employed car financing and examine whether working for yourself makes it more difficult for you to borrow the money you need to get a car.
Ahhh, self-employment! It sounds like the dream, right? Being your own boss, working when you like, taking on only the work you want to take.
For 15% of the UK, population, that’s certainly the case. (Self-employment has been steadily on the rise in the UK since 2001, even among 16-24 year olds.
If you’re self-employed, though, there are still some downsides. No employer-matched pension, no holiday pay and uncertainty over borrowing money for things like houses, home improvements and cars.
So, is it harder to find self-employed car financing?
If you’re self-employed, you should still qualify for car finance. The fact that you’re self-employed shouldn’t factor into the decision at all. Or, at least, it won’t be a reason for a lender to reject your application.
However, you will have to prove your income.
Being able to prove your income is a big part of the finance application for if you’re looking for self-employed car finance.
Proof of income demonstrates that you’ll be able to consistently pay the money you owe. If you can’t prove this, you’ll be considered high-risk by your lender. Even if you earn enough but your income is sporadic, you might fail the affordability checks that are compulsory for any lender.
What qualifies as proof of income?
Unfortunately, because there’s no paper trail, cash-in-hand isn’t considered proof of income. Money should go into your account, your partner’s account or your business bank account.
Most finance companies will not accept tax returns as proof of income either.
For the best chances of getting self-employed car financing, you should be able to prove that you have a regular income with bank statements. A good credit score won’t always be enough to guarantee that you qualify for self-employed car finance.
And because lenders are always looking for evidence of stability in employment and address history, the longer you have been self-employed and at the same address, the better.
Also, the type of work might factor into the decision.
Now, the vast majority of self-employed work is usually A-OK, but some lenders won’t provide car finance for self-employed taxi drivers due to the fact that they’ll be using the car for work and, as such, it’ll depreciate in value much quicker.
Our top tips for finding self-employed car finance:
- Always keep your accounts up to date. This helps prove regular, dependable income to your lender. (Which is exactly what they’re looking for.)
- Make sure you’ve got a copy of tax returns, bank statements and any other proof of verifiable income, including contracts for future work or retainer work.
- Do everything you can to build a good credit score. Although you won’t be approved on credit score alone, it can help improve your chances.
- Make sure you build up savings. Not only do savings help with peace of mind, but they’ll also make sure you’ve always got a safety net to pay your car finance on time. Putting up more of a deposit and reducing the amount of money you borrow will increase your chances of being approved too. (A big deposit also demonstrates that you can manage your own money to a lender.)
What should I do if I don’t qualify for self-employed car finance?
If you don’t qualify for self-employed car finance, you might be able to get a guarantor loan to cover the cost of your car. Having a guarantor guarantee your application lowers the risks you pose to the lender and can improve your chances of being approved.
At Bamboo, if you need to borrow the money for a car, we have a number of options available – even if you’re self-employed or have bad credit.
- Author The Bamboo Team
- Posted 15 July 2019