Self-Employed Car Finance: What Do You Need To Do?
Lenders are expected to behave responsibly, as set out by the Financial Conduct Authority; by ensuring the borrower can meet the repayment commitment, they are protecting the borrower and themselves from potential financial difficulty.
They will need information from you to prove you are reliable; easy to do when you are in full-time employment where you can show an employment contract, evidence of a monthly income and how long you have been in employment. When you are self-employed, it is harder to demonstrate reliability but some lenders will accept one or two years, and some will even accept three months’ of bank statements and use an average of income.
Tax returns may also be allowed, and evidence of trading may also be required. The net profit of your business after tax will be what they look at.
Choice Of Vehicle
Your choice of vehicle will be required by the lender. The choice of vehicle will make a difference to the rates you will pay and will also have an effect on the overall cost of ownership – tax, insurance, fuel, and any other upkeep requirements could cost more than other choices of cars. It’s recommended you think carefully before deciding on a particular brand of car; those with a more powerful engine may use more fuel or a vehicle with extra modifications may incur higher insurance fees.
If the vehicle is going to be used as a business vehicle, you may find some lenders will not consider agreeing on a loan. The key reason for this is that business vehicles are used more and therefore require more maintenance and upkeep than the average vehicle. The mileage is also likely to be higher. This could result in the car being worth less than the value of the loan, which is not ideal if you default on repayments. A good example of this is a driving school or taxi service.
You should also be honest about your earnings and outgoings and not try to inflate your income. Applying for a loan that is more than you can afford will mean you are likely to be declined, which could be detrimental to your credit rating.