If you are self-employed and rely on your vehicle for business purposes, car financing is probably something you are considering. However, without traditional employment, the lending market can be challenging. Lenders typically see those who are self-employed as less stable and more likely to be impacted by market fluctuations. The good news is that being self-employed doesn’t automatically disqualify you from obtaining car finance. In this article, we’ll explore the possibilities and discuss the key factors and preparations required to improve your chances of getting car finance as a self-employed individual.
Be realistic about the challenges with car financing when self-employed.
Acknowledging the challenges self-employed individuals face when seeking car finance is essential. Traditional lenders may consider self-employment riskier due to fluctuating income and lack of stable employment contracts. However, several alternative financing options and specialised lenders are available who understand the unique circumstances of self-employment. It might also be advisable to consider alternate options, such as renting a car for work purposes or borrowing money from friends and family to make the process smoother.
Build a solid case for car financing with a strong financial profile.
- Maintain Accurate Financial Records and organise your financial documents, including tax returns, bank statements, and profit and loss statements.
- Demonstrate good credit history to the lender. Lenders assess creditworthiness as part of their overall assessment. Regularly monitor and maintain a healthy credit score by paying bills on time, reducing outstanding debts, and minimising credit card utilisation.
- Show a consistent track record of earnings, even if they fluctuate. Lenders often prefer self-employed individuals who have been operating their businesses for a certain period, usually at least two years. This demonstrates stability and reduces perceived risk. Providing evidence of regular income can help alleviate concerns about irregular cash flows.
Choose the right lender.
You can explore lenders specialising in self-employed car finance or loans for small businesses and start-ups. They often have tailored solutions that consider your unique circumstances. You can also seek guidance from a professional finance broker with access to multiple lenders.
If you’re struggling to meet the lender’s requirements, having a trusted individual act as a guarantor can enhance your eligibility. A guarantor agrees to make repayments if you default on the loan, providing additional security to the lender.
Also, consider friends and family loans. These can often be a rewarding experience for the lender helping you out, and at the same time, remove the added costs of bank fees, interest rates etc. Using Chipkie can also help you manage that loan, keep track of repayments, and ensure payments are made on time so there is no strain on the relationship.
Save for a larger down payment.
Offering a substantial down payment reduces the risk for lenders and increases your chances of approval. A larger down payment can also help lower your monthly installment and interest rates.
Being self-employed doesn’t automatically disqualify you from obtaining car financing. With careful preparation and understanding of the lending landscape, you can enhance your chances of securing car finance. Researching specialised lenders, maintaining accurate financial records, showcasing stable income, and offering a substantial down payment are crucial steps toward achieving your goal. Remember to consult with finance professionals for personalised advice and guidance.
Look to Friends and Family
Chipkie brings a layer of professionalism to informal loans. If you are struggling with traditional lenders, why not approach a friend or family member, backed by Chipkie to ensure a formal loan agreement and payment plan are in place. With Chipkie you can even agree to add a formal interest rate to the loan to ensure it is equitable for both sides.