Car credit for the self employed
Posted on April 3, 2019
Self employment is on the rise across the world as people look for alternatives to the daily grind and technology makes earning your own living easier than ever. Being self employed is empowering but does require a change of approach for some financial elements though. Car loans for instance need a little more work if you’re self employed as opposed to being employed.
There are two main issues that will provide a challenge to some self employed people wanting a car loan, income verification and deductions. The same factors influence what credit you can access, credit score, credit history, affordability and so on but you may find it more difficult to prove earnings or potential earnings.
Income verification for the self employed
All employees have to do is provide the last few months wage slips or bank statements showing employer payments. Many self employed people won’t be able to provide either of those, certainly not in the early days.
So what can you do?
Have your accounts prepared by a qualified accountant. You will need a couple of years of these and tax returns for the same period. The more evidence of your income you can provide, the higher the chance of accessing credit. The fact that an accountant prepared your accounts rather than you doing it yourself adds credence to the numbers.
One perk of being self employed is the number of perfectly legal deductions you can make to reduce your tax burden. In the early days of being self employed, saving money is vital to the success of your venture but it can work against you too.
Many lenders look at your income after deductions so the more deductions you have, the less money is shown as available afterwards. While this is very tax efficient, it lowers your perceived income after deductions as a result.
To overcome this, you can either apply for fewer deductions and pay more tax or work with a lender who understands self employment and is willing to work with you to apply for credit. As there are lots of lenders who now get that self employment is a viable career path, they are much more willing than before to offer finance to those who can prove they can afford it.
Once it was almost impossible to access credit as self employed. With the evolution of the economy and millions of people now going it alone, some lenders have moved with the times. Use one of those and you should be fine!