Getting a car loan when you’re self-employed usually involves providing extra documents to prove the auto lenders that you have what it takes to afford your dream vehicle.
It doesn’t matter if you’re self-employed or part of a company with 1000 employees; you can still obtain a car loan.
But there are a few other things that we need to discuss if you want a car loan but are your own boss. This article will be the 2023 guide every self-employed person with a wish for a new vehicle needs.
So, without wasting too much time, let’s start.
Every lender will at first check your credit and determine the state. If the credit is bad then you might be in for a bumpy ride. If the credit is good then you can get approved in no time.
But let’s discuss the former scenario; bad credit. If you have bad credit and want to take a car loan, then you will need to provide proof of income to the lenders. These people will usually ask for three things.
The first thing they’ll ask for is a minimum monthly income of $1,500 coming from a single source. The nest thing is related to how bad your debt to income ratio is, and it cannot exceed 50% otherwise you’ll end up getting rejected. And lastly, they’ll look for a payment to income ratio spanning from 15% and 20%.
Since you’re self-employed, then that means you aren’t a W-2 employee and don’t have to show copies of tax returns for the previous year. What you need to do instead is bring in the past two tax-returns that will verify your income. But that’s not all.
If the lenders aren’t satisfied with what they see, then they will ask for further documentation such as bank statements to determine whether you’re in debt and how much. As we mentioned, if the debt to income ratio exceeds 50%, then you’ll get rejected instantly.
How to Quality If Rejected
Even if you do get rejected, it’s not impossible to qualify again. There are multiple things you can do, and a few things to try, that can help you finance a vehicle.
For starters, you can try and improve your situation by improving your financial situation. Good finances lead to good creditworthiness, and lenders always take notice of how credible you are.
Let’s explain a few tips below on how to improve your finances and qualify
Improving the Credit Score
Since most rejections are based on bad credit, it should go without mentioning that you need to improve it. The credit score directly speaks to the lenders, as it can either boost or harm your chances of getting improved.
Since the credit score is something of a rating for your finances, lenders won’t want to lend to you if you’re credit is bad. Naturally, you’d want to improve it so lenders give you the benefit of the doubt.
But this is quite possibly the hardest thing to do. Improving bad credit takes a lot of time, and who knows if you even succeed. This means you have to explore other options, so let’s do that.
Financing Through BHPH Dealerships
You’re mostly reading this article since you’ve already been turned down by a lender. You’ve also heard about BHPH dealerships, but you’re sure what they are, how they operate, and whether they have quality stock.
One thing is certain when it comes to BHPH dealerships, they will do business with you. BHPH refers to “buy here, pay here”, and they’re great establishments to look for a vehicle.
We should mention that these dealerships don’t sell new cars, but rather used ones. However, that doesn’t mean that they have poor quality vehicles on display for you to look at.
These dealerships are excellent if you have bad credit since they don’t take into consideration your credit but rather your monthly income.
This means that you don’t have to spend an endless effort trying to improve your credit to be approved for a loan.
Regardless, if you have a hard time being approved for a loan and are desperate to buy a vehicle, then BHPH dealerships are an excellent choice. Furthermore, BHPH dealerships ask for significantly less documentation and paperwork for the self-employed, and they might just be the solution to your problem.
Make sure to visit franksautocredit.net to know more about how this process goes.
Make a Down Payment
The third method is to show some steel when negotiating with any lender.
If you have a poor credit score, then lenders won’t negotiate with you because you’ll be a person of high risk. Naturally, it’s safe to mention that everyone buying a car has to leave at least 10% as a down payment when getting a loan.
However, since you have a poor credit score or is self-employed, then lenders will ask for a sum amassing far more than 20%. The more you leave as a down payment, then there are significantly fewer risks involved for them. If you’ve been rejected previously, then it’s maybe because lenders don’t want to take a risk with you.
If you offer a down payment amounting to 35% of the total cost for the loan, then that might just change the lender’s mind and approve the loan. Make sure to always have that in mind whenever exploring this option.
It’s important that you don’t rush buying a vehicle if you don’t have the finances. A vehicle is very important for the working man/woman, but there are other ways to get to work if you don’t have the money to buy a car.
Working more and improving your finances is a very smart thing to do. Not only will you save more, but you’ll also be in a better financial state when negotiating with the lenders.
Being self-employed does have its positives, but it isn’t that great if a business isn’t going smoothly. Being self-employed also means lenders will ask for further documentation whenever getting a loan for anything of that scope. That’s why you need to be patient and work hard to get the car of your dreams.