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.
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:
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 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.
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.
When applying for self-employed car finance, you’ll need:
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 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:
There are several things you can do to put yourself in an excellent position to get car financing, including:
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).
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.
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.
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.
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.