The short and positive answer is ‘yes’! Whilst the key thing 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.
Proof of income
The first thing that finance lenders will be looking for is proof of steady and regular income. Dependent on your credit score, the lender will probably want to see proof of income on paper in order to assess your credit criteria and your ability to keep up with monthly repayments.
To work out your average income, lenders will usually total your 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. However, 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.
Monies that are authorised by lenders must be from a UK bank account in yours, or your spouse or partner’s name. Cash-in-hand cannot be used as proof of income. If the bank account is in your spouse or partner’s name, they will also 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.
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.
When applying as a business, you’ll also need to decide whether the car being financed will be for business use and the business type is intrinsic to the use of the car. 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 car’s 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 that your credit profile is as strong as possible. We recommend ensuring you’re on the Electoral Roll. This improves your credit profile and proves your identity through a government-run system. This can reassure lenders that they are not at risk from fraud or identity theft.
There are also a number of additional ways to improve your credit score, which you can read about here.
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.
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 as 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.
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!