What you need to know about self-employed car finance
1 August 2023
By Joy Pearson
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Are you a self-employed individual who's on the hunt for a new set of wheels? Well, buckle up because we've got some exciting news! Getting approved for car finance as a self-employed person doesn't have to be so daunting anymore. In fact, with the right information and a bit of know-how, it can be a breeze. In today's post, we will delve into the factors that lenders take into consideration when self-employed individuals apply for car finance, and provide an overview of the application.
As a self-employed individual, you may have some questions about applying for car finance. How does it work, and what do I need to know before applying? Before applying for car finance, it's essential to understand the criteria that lenders consider when assessing a self-employed applicant. Lenders will typically look at the applicant's credit score, income, and credit history. They will also assess the applicant's ability to repay the loan, taking into account their current financial circumstances, any outstanding debts, and their income stability. It's essential for self-employed individuals to keep their financial records in order. This includes detailed records of their income and expenses, bank statements, tax returns, and other relevant financial documents. Having organized and up-to-date records can make the car finance application process much smoother.
In addition to the standard application documents, such as a driver's license and proof of insurance, self-employed applications may need to provide additional documentation to prove their income. This may include bank statements, tax returns, and business financial statements. Self-employed individuals may be seen as higher-risk borrowers, so it may be beneficial to consider a larger down payment to offset this risk. A larger down payment can also help lower monthly payments. Don't forget to shop around for the best rates and terms, as this is crucial when applying for car finance. By comparing offers from different lenders you can choose the best rate that suits your financial situation or even consider working with a specialist lender that has experience working with self-employed individuals.
In terms of the application process, self-employed people need to be prepared to provide additional documentation compared to employed individuals. This is because lenders want to ensure that the borrower has the financial means to repay the loan. To start the process, the borrower will need to complete a finance application and provide basic personal information. It's worth noting that some lenders may ask for references from clients or suppliers to verify the self-employed individual's income. This is a common practise among lenders and it done to ensure that the borrower has a steady stream of income. However, not all lenders require references and the specific requirements may vary depending on the lender and the individual's circumstances.
Once the application and documentation have been submitted, the lender will review the information provided and assess the borrower's creditworthiness. The lender will also check the borrower's credit score, which is a reflection of their credit history and how they've managed their finances in the past. If the lender approves the application, they will provide the borrower with a loan offer that outlines the loan amount, interest rate, and repayment terms. It's important for the borrower to review the loan offer carefully and make sure they understand the terms before accepting the offer.
Once the checks are completed by the lender, the individual will typically work with the lender or broker to choose a car that meets the lenders and applicant's requirements. The lender may have certain restrictions on the make, model, and age of the car that can be purchased, depending on how much they are asking to borrow, as well as the mileage and condition of the car. After the car has been selected, the lender may require individual to provide additional documentation, such as proof of insurance before the finance agreement can be finalised. The individual will then sign the finance agreement, which will outline the terms of the loan.
It's important to note that the exact process for applying for car finance may vary depending on the lender or broker. It is always a good idea to carefully review the terms and conditions of any finance agreement before signing, and to compare offers from multiple lenders to ensure that you are getting the best possible deal.
In essence, applying for car finance as a self-employed individual may require a bit more effort compared to employed individuals. However, it is still possible to obtain car finance, and with the right information and preparation, the process can be streamlined and stress-free. Remember to do your research, shop around for the best deals and be prepared to provide additional documentation when necessary. by following these tips, you can increase your chances of getting approved for car finance and driving away with the car of your dreams.