Well, if you're self employed and looking for car finance, the short and positive answer is ‘yes’! The key thing will be proving your income, along with the usual checks on your credit score. We take you through the ins and outs of getting car finance as a self employed person. What's more, you'll get all the information you need to make your car buying journey as easy as possible.
Proof of income when self employed
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. The reason for this is 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. This can vary slightly if you have a lower credit score. In this case, 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. In addition, most will require 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. Where the business use of the car would be deemed excessive or abnormal, your application may be rejected by lenders.
As an example, some finance lenders won’t finance a car for self employed taxi drivers. This is because taxi drivers 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. In turn, this reassures lenders that they are not at risk from fraud or identity theft. There are also many other ways to improve your credit score.
If your credit rating is good and you can afford to, putting down a deposit is a good idea. Where possible, try to put as much money towards the car as possible for your circumstances. This helps 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. However, please be sure you have a full understanding of your responsibilities when taking this route.
Additional information
Essentially, the more information the lender has on you, the more security they have. This can 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. You may hope to increase your chances of being approved or get you a better rate. The downside is that finance lenders may 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. By the end of 2019, there were £5 million self employed people in the UK, up from £3.2 million in 2000. 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. Be assured that there are many different ways to obtain car finance. We hope our advice has been useful but if you need any more information about self employed car finance, we’re here to help!
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