The short and positive answer is ‘yes’! The key to making the process of taking out car finance as smooth as possible will be proving your income. We want to take you through the ins and outs of getting car finance as a self-employed person – giving you all the information you need to make your car-buying journey as easy as possible and improving your chances of being accepted for car finance.
Proof of income
First and foremost, the finance lenders that we will approach for you will be looking for proof of a steady and regular income. Dependent on your credit score, the lender may want to see your income on paper in order to assess your credit criteria as they’ll still want to check that you can keep up with monthly repayments.
If you have a lower credit score, you may be required to produce in excess of three months’ worth of bank statements or payslips to prove your income. To work out your average income, lenders will total the income in the last three month’s bank statements and divide it by three. This then allows them to get a credit limit based on your proof of income.
Monies that are authorised by lenders must be received from a UK bank account in yours, or your spouse or partner’s name. Cash-in-hand cannot be used as a proof of income. If the bank account is in your spouse or partner’s name, they will also be need to be added to the finance application.
Most finance companies will also not accept tax returns as proof of income.
Employment and address history
The lender will need to see a minimum of three year’s employment history, three year’s address history, and you’ll need to have been a UK resident for a minimum of five years.
Lenders are looking for evidence of stability in employment and address history – the longer you have been at your current job and address, the better.
We recommend putting yourself on the Electoral Roll, if you aren’t already on it. This helps to improve your credit profile and also proves your identity through a government-run system. This gives lenders the reassurance that they are not at risk from fraud or identity theft.
Essentially, the more information the lender has on you, the more security they have, which will greatly improve the chances of them approving your car finance application. However, make sure that you are honest as possible. You shouldn’t attempt to overstate your income in the hope that it’ll increase your chances of being approved or get you a better rate. Finance lenders would normally see this as fraud, which could have serious implications.
Applying as a business
If you’re applying on behalf of your business, there are many things you need to take into account. Firstly, your business will need to have been registered and trading for a minimum of two years. Usually lenders will take your net profit as financial reassurance, with most requiring it to be at least double the amount of the money you are looking to borrow. You’ll also need to decide whether the car being financed will be for business use and the business type is important. Any cases in which the business-use of the car would be deemed excessive or abnormal, will usually be rejected by lenders.
As an example, some finance lenders won’t finance a car for self-employed taxi drivers, who will be using the car much more frequently and adding more mileage than normal. This affects the cars value more than if they were just using it for everyday driving.
What should I do if I’m struggling to show proof of income?
Focus on making sure your credit profile is a strong as possible, which as mentioned previously, should include being on the electoral roll.
If your credit rating is good and you can afford to put down a deposit, you should try to put as much money towards the car as possible for your circumstances. This will help to share the risk of the loan with the lender and give them further reassurance to approve your application.
Finally, consider using a Guarantor or submitting a joint application. This lowers the risk for the lender and can increase your chances of getting accepted.
Going self-employed is many people’s dream – working for yourself means being responsible for your own success and directly reaping the rewards of your hard work. Driven by changes in the economic climate and helped along by the digital revolution, figures show that self-employment in the UK has increased in popularity, from 3.8 million that were self-employed in 2008 to 4.8 million in 2017. We want to help anybody that’s self-employed to get car finance.
So, don’t lose heart if you’re self-employed and want a car loan – there are many different ways to obtain car finance. We hope our advice has been useful but if you need any more information about applying for car finance when you’re self-employed, we’re here to help!