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Best Way to Finance a Car for Self Employed

Written by, Marija Petkova

Updated July, 19, 2023

If you’re self-employed, it can be tricky to manage car finance expenses. 

Traditional lenders might not consider your income reliable, and that could mean getting stuck with a high-interest rate or not being able to get a loan at all. 

Luckily, there is a way around it. 

If you’re looking for the best way to finance a car for the self-employed, read on.

Can I Get Car Finance as Self Employed?

The number of self-employed workers in the UK has risen dramatically in the past decade. 

Thanks to this growth and the demand for credit, lenders have a good-enough incentive to serve this part of the market and offer both self-employed car loans and car finance deals for self-employed individuals.

That said, there are three main ways you can finance your car purchase:

Personal loan

A personal loan is a good option if you have a good credit history and can afford to make regular repayments. With a good credit score, you’ll get a cheaper interest rate, and more importantly, you will own the car from the onset (which is not the case with other car finance products), and you’ll be free to modify it and drive it as much as you want.

Hire purchase (HP)

Hire purchase finance is similar to a personal loan. You spread the monthly payments over a period of time (after making an initial deposit), but you’ll only get full ownership of the car once you repay it in full

Personal contract purchase (PCP)

With PCP financing, you don’t pay the full amount for the car, which means you’ll likely pay less in monthly installments. The downside of this type of financing is that you will have to set mileage limits. On the other hand, a PCP agreement doesn’t tie you to one car. At the end of the term, you can choose to return it, trade it for a new one, or purchase it outright with a balloon payment

Worth noting: If you have a bad credit score, you might get a better deal with car finance than a loan. If you’d still want to get a loan rather than a car finance deal, you will likely get better rates with a car loan with a guarantor. 

What Do I Need to Get Car Finance?

When applying for self-employed car finance, you’ll need:

  • A deposit: If you’re buying a car on finance (PHP and HP), you’ll need to pay a deposit. The amount will vary depending on the type of loan you are applying for, your credit history, and the vehicle you’re buying. The higher the deposit, the lower your monthly payments will be. 
  • A credit score: The full cost of the car finance deal or the loan, as well as your eligibility to get one or the other, depends on your credit score. A good credit score to buy a car indicates to lenders that you are a low-risk borrower and are more likely to repay your loan on time.
  • Proof of income: This can be in the form of payslips, tax returns, or bank statements. Lenders and car finance providers use this information to assess your ability to repay the loan. 
  • Proof of residence: Regular mortgage payments and items like cable and utility bills will show the lender that you are financially responsible and capable of handling a loan.

Worth noting: If you choose to finance your car with a personal loan, you won’t necessarily have to pay a deposit. 

Proving your income as a self-employed individual

Proving your income as a self-employed person might be more complicated, but there are things you can do to ensure you get a good loan. 

Both lenders and finance providers will accept your latest trading accounts. If your business hasn’t been trading long enough, you can show several months of bank statements as proof of income and outgoings. 

Finally, you can use tax forms to secure financing as a self-employed individual, including: 

  • Form 1040
  • Schedule C
  • Schedule SE
  • 1099

What Can I Do to Increase the Chances of Being Accepted?

There are several things you can do to put yourself in an excellent position to get car financing, including:

  • Make sure that your credit details are accurate ⇒ Lenders will check your credit history, and any inaccuracies could lead to your application being rejected.
  • Repay any debts that you have ⇒ This will show lenders that you’re able to manage your finances and make regular payments.
  • Have a settled address ⇒ Lenders like to see stability, so if you’ve been moving around a lot, it could negatively impact your application.
  • Put down a larger deposit ⇒ A bigger deposit shows that you have more financial security and are less likely to default on the loan. The more money you put down, the lower your monthly payments and the loan amount will be.
  • Get on the electoral roll ⇒ This helps lenders verify your identity and address. It’s easy to do and could make a difference to your application.

Is It Still Possible to Get Car Finance if You’re Self-Employed With Bad Credit?

Traditional lenders typically view self-employed individuals as high-risk borrowers due to fluctuations in their income.

Having a bad credit score on top of that will hurt your chances of getting a loan or financing altogether. But that doesn’t mean you won’t find a lender or a finance provider that’s willing to give you an offer. You could also get a loan while on benefits.

If you have the financial statements to prove regular income and the ability to repay what you’ll owe in full, you might still be able to get car finance with no proof of income, but you’ll likely have to put down a larger deposit and agree to higher interest rates (APR).

Bottom Line

So, what is the best way to finance a car for self-employed individuals? It depends on your unique situation. If you have good credit and don’t mind putting down a large sum of money at once, then a traditional loan may be the best option for you. But, if you’re looking for more flexibility, then you might want to consider buying a car on finance as a self-employed.

Frequently Asked Questions And Their Answers

Is it harder to get car finance self-employed?

Getting car finance as a self-employed individual can be trickier because lenders and car finance providers usually require applicants to have a stable income. Self-employed individuals can still access loans and other financial products if they can prove they can afford them.

How long do you have to be self-employed to get car finance?

You’ll usually need to have been self-employed for at least 12 months to get car finance. This is because lenders like to see a track record of income and outgoings.

How do you prove income for car finance?

You can provide your latest trading accounts, bank statements, tax forms, and pay slips. The best way to finance a car for self employed individuals depends on how they can prove their income, their credit rating, and the amount they’re willing to pay upfront.

My name is Marija, and I'm a financial writer at DontDisappointMe. Although finance might not be everyone's cup of tea, my 10+ years of working in one of the biggest banks in my country, and my interest in extensive research on everything finance/investment-related, have made me somewhat of an expert in the field (if I do say so myself). No longer having the passion to work in a corporate setting, I decided that I couldn't let all of this knowledge go to waste so I started writing. And, here I am! Today I try to share my knowledge with my audience in the hopes of making this topic as simple and interesting as possible. In my leisure time, I like spending time with my family and travelling to new locations.