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