How to Get a Car Loan if You’re Self Employed

Being self-employed doesn't mean you can't get a car loan. In fact, contractors and business owners qualify for auto loans all the time. The important thing is knowing what documentation is required in order to show the lenders that you're able to carry the car note. In this article, we'll teach you how to get a car loan if you're self-employed.

Self Employed Car Loans: Good Credit vs. Bad Credit

Like all auto loans, credit plays a huge part in whether or not you qualify, as well as what terms you qualify for. In the eyes of auto loan lenders, there are only two types of self-employed car buyers: Those with good credit and those with bad credit. If your credit is in good standing, then you probably won't have much trouble qualifying for a car loan.

However, if you have bad credit, you may be required to present some additional paperwork in order to prove your income. This is where some self-employed car buyers get into a bit of a pickle. By racking up your deductions, you lower your taxable income and keep more money in your pocket at tax time. However, this low reported income could also cause you to not qualify for an auto loan.

It's important to report your income accurately in order to keep your credit in good standing. If your credit appears to be bad, learn how to increase your score here.

Proving Your Income

In order to provide you with a loan, you'll need to first demonstrate to the lenders that you're able to make regular monthly payments. To prove your income, you may be asked to furnish your last two years' worth of tax returns. However, if you don't have your tax returns, you may be able to provide bank statements instead.

The lending institution may ask for the last six months of full bank statements. This will show that you have steady income that is able to cover the cost of the loan. If you don't have bank statements or tax returns, then you may find it's virtually impossible to be approved for an auto loan.

What Else is Needed for a Car Loan?

Proving your income isn't the only requirement when applying for an auto loan. Depending on the lender, they may ask you for other types of information as well. Most of this is required so that the lender can contact you should there be an issue with repayment. For example, you'll probably be asked to produce a proof of residence. They may also want your landlord's information or your most recent mortgage statement.

It's not uncommon for lenders to ask for personal references also. This is a list of close family and relatives along with their addresses. You might also be asked for a copy of your most recent phone bill. Finally, some institutions will even call you for a personal interview.

While this might seem like a lot, it's important to keep in mind that not all lenders require the same information and not all self-employed car buyers will be asked for the same documents. Your ability to qualify for a loan is largely dependent on your credit history and your ability to prove steady income.

Have any questions? Contact Fred Beans Auto Loans today!