Self-Employed Car Finance

The number of self-employed people in the UK has been rising for a couple of decades now. Many people need access to a car to help them get to work, transport their family from a-to-b or simply to live their day-to-day lives. Just because you’re self-employed these needs don’t suddenly evaporate.

Being self-employed can be a wonderful experience, adding a sense of satisfaction you may not have found in another job that’s then coupled with a feeling of freedom. Unfortunately, despite the rising numbers of self-employed people, lenders may be reluctant to enter an agreement for self-employed car finance.

Why is self-employed car finance hard to get?

Without a guaranteed regular income, and potentially not having three years of accounts to prove your income, can lead some lenders to have concerns over your eligibility to meet payments.

In some instances, you may struggle to get lenders to agree to a car finance deal at all, or a deal you may have to settle for a deal with a poor rate. You may be treated like someone who has bad credit, even if you don’t. 

What are my options for self-employed car finance?

This doesn’t mean that getting a car on finance when you’re self-employed is impossible, or that you’ll definitely have a bad deal. There are still good options for self-employed people looking for car finance.

At ChooseMyCar we are here to help self-employed people apply for car finance. Check out our car finance calculator or apply for car finance today.

Before applying here are our tips on preparing yourself for applying for car finance when you’re self-employed. These are also worth considering if you are self-employed and have an existing CCJ or IVA.

Step One: Get your finances in order

To get things going it’s best for you to get your finances in order. Ideally, you’ll have three years' worth of earnings which you can show a lender to prove your regular income. If you can’t do this though then there are a few things to consider. Just like improving your credit score, it would make sense to do the following:

  • Settle any old loans or debts
  • Cancel any non-essential subscriptions (do you really need that extra TV package?)
  • Close any historical joint bank accounts or other financial links with people that have a poor credit history

Step Two: Get on the electoral roll

Just like with a credit score you’ll need to get yourself on the electoral roll, if you aren’t already. This will allow you to confirm your name and address, and it’s often the first port of call for lenders when making checks.

Step Three: Provide up-to-date trading accounts

Providing lenders with your up-to-date trading accounts will allow them to see your ability to meet payments. They’ll be able to see your available finances after business expenses have gone out.

As previously mentioned, the more years you can provide the better as this will prove your income and ability to meet payments. However, with the growing number of self-employed people in the UK in recent years, many lenders have relaxed their stance on this considerably, often allowing only two years of accounts or potentially even one year.

Step Four: Show them your personal bank statements

If your business is still too new to prove your income over a longer period of time you may need to provide them with a series of bank statements. This can provide proof of your incomings and outgoings.

This can give an overview of your financial history and highlight your ability to budget and keep money aside for additional expenses.

Self-Employed Car Finance: Things to Consider

Consider what you’re going to use your car for:

Most lenders won’t offer you a car on finance if you’re using it for work purposes due to the potential for increased mileage and wear & tear. Some may consider a Hire Purchase agreement however.

Be honest:

Be upfront and honest with your incomings and outgoings. Do not artificially inflate your incomings.

Be realistic:

Make sure you only apply for something you can definitely afford. Being turned down for a loan or missing repayments will negatively affect your credit score.

Consider a large deposit:

If you can afford a big deposit upfront this can greatly decrease the amount you need to loan and increase your chances of being approved.

Consider a guarantor loan for self-employed car finance:

Using a guarantor allows someone else to pick up any payments you may miss. This can be an attractive prospect for a potential lender. 

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Frequently Asked Questions

Guarantors will have to undergo a credit check at the same time as the borrower. This is done to make sure that they are in the right situation to be making any repayments if they are called upon, and the lender will want to see that they are reliable.

The length of a car finance agreement will vary for a number of reasons. The overall length of a term is usually measured in 12 month increments. 

These terms usually start with a minimum of 24 months (2 years) upt to a maximum of 96 months (8 years). Generally terms for used cars are shorter than those for long cars. 

While the monthly repayments will likely be lower on a longer term plan, it’s worth working out how much interest you’ll pay if you opt for something over a longer period of time.

It is possible to get car finance with bad credit. Many lenders provide loans and finance options specifically for people with bad credit.

Personal loans can be a great car finance option if you have bad credit. And a guarantor loan may help you avoid higher interest rates; this is where a friend or family member co-signs the loan, agreeing to meet payments if you're unable to.

With pre-approval on a personal loan, you can walk into the dealership like a cash buyer. You can be in a better position to negotiate on price. And you can avoid the stress of the finance office.

Your credit file is checked if you apply for car finance. And you'll usually have to provide proof of ID, address, and income. The specific documents you'll need ultimately depend on the finance provider you go with.

Providers will check your credit score when you apply - initially via a soft search. They'll perform a hard credit check if you choose to enter into a contract with them. Most lenders will need to see your driving licence - full or provisional. You may also be asked to provide:

  • Your passport - for proof of ID
  • Utility bills or council tax letters - for proof of address. These usually need to be dated within the last three months.
  • Payslips - for proof of income and to make sure you can afford the payments. Some providers may ask to see a few months' worth.

While it’s not ideal, there are circumstances that may occur that stop you from making a payment.

If you are unsure about your ability to make an upcoming payment we would recommend contacting your lender. This way there may be something that can be worked out before the payment is missed.

If you’ve already missed your payment, and can afford to make it, contact your lender as soon as possible to make the payment. You may incur a late fee, but making the payment can stop anything else from having.

If you continue to miss payments there is a chance your car could be repossessed and you will still owe for missed payments. Your credit rating will also be negatively affected.

A guarantor loan is different from other loans in a couple of ways. First of all, they include a third party. That third party will be someone you know who will act as a guarantor and will make any of the payments you miss. Secondly, guarantor loans are generally unsecured, meaning they aren’t placed against an item, like the car in a car finance agreement, so the car is unlikely to be reclaimed if a payment is missed as the guarantor will step in and make it.

Yes, you can get car finance using a guarantor. Having a guarantor may make a lender more likely to accept someone with bad credit or no credit history as a borrower. This means they can be a good option for people in these situations. 

While a guarantor can help someone who has bad credit get approved for car finance, they themselves cannot have a poor credit score.

While it’s not uncommon, and often preferred by lenders, for a guarantor to be a homeowner, it’s not essential. They could be a renter or even live with their parents. The important thing is that they can prove that they can afford to make any missed repayments.

A guarantor is someone that will meet payments if you miss one. They are usually a parent, but can be anyone not directly linked to you financially, i.e. you can’t have a joint account with this person.

Read our guarantor loan guide.

Having a guarantor can help you to get a loan when you otherwise may not have been able to, i.e. when you are a young driver, self employed or have bad credit.

Lenders may look more kindly on someone in one of these situations if they have a guarantor so they know that there’s less chance of a missed payment.

Read our guarantor loan guide.