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The best way to finance a car for the self-employed

Getting car finance when you’re self-employed can sometimes feel a little bit trickier, but it’s still possible

Car finance

If you’re self-employed, you can apply for car finance in the same way everyone else would – you might just need to provide a few extra documents.

When you apply for car finance as a self-employed person, you’ll need to make sure you can prove to the lender that you can repay the loan.

All lenders have different criteria for their loans, so it’s important to check with the individual provider to see if you’re a good fit.

Is it harder to get car finance if you’re self-employed?

It can be harder to get car finance if you’re self-employed, as lenders will need to make sure you can pay back the loan.

You might find it harder to get accepted for the finance if you also have a poor credit score, so you might want to check that your credit report is looking good before going ahead with an application.

There are a few things you can do to make it easier to get accepted for car finance if you’re self-employed, and there are also some documents that can really help you out.

If you’re prepared and do your research beforehand, it’ll make the process much easier.

What documents will I need for car finance if I’m self-employed?

When you apply for car finance, the provider will want to check a few things to make sure you’re the right fit for the loan. These could include:

  • Proof of income – evidence of a stable and steady income will make you much more attractive to lenders, especially if you don’t have the best credit score. Some lenders will ask for three months' worth of bank statements to get an idea of your finances, and/or your tax returns.

  • Trading accounts – your latest trading accounts will give the finance company an idea of how likely it is you’ll have the funds to repay the loan.

How can I increase my chances of getting car finance if I’m self-employed?

There are a few things to do that could improve your chances of getting approved for car finance if you’re self-employed.

Improve your credit score

Your credit score plays a large part in getting accepted for car finance, and a poor credit history can mean that lenders are less likely to approve your application.

If you’re self-employed and don’t have the best credit report, it can be much harder to get approved for finance – it's a good idea to dedicate some time to improving this before you apply.

You can take simple steps like getting on the electoral roll or repaying old debts, as this will help your credit score improve in the long run.

Put down a large deposit

Putting down a larger deposit on a car finance deal will mean you’ll need to borrow a smaller amount from the car finance provider.

This might make the provider see you as less of a risk, as you’ll have smaller monthly payments and less to repay.

If you can put down a larger deposit, it can be a good way to be more attractive to a lender.

Make sure your application is correct

Small errors in your finance application can make a big difference – you want everything to be accurate.

Imagine you’ve written down the wrong address and the finance company can’t find you registered – that’s not going to look great.

Fixing small errors and making sure to proofread is an easy way to increase your chances of approval.

Try a guarantor car finance loan

Guarantor car finance loans aren’t common these days, but they can increase the likelihood of being accepted.

Having a safety net in place in the form of somebody else to take responsibility for the debt if you can’t pay can sweeten the deal for lenders.

If they know they have someone else to rely on, they might feel better about granting you the finance.

The person should be a close friend or family member – you want this to be somebody you trust and who understands the associated risks, and would be happy to pay the loan if you were unable to.

Provide proof of your income

If you're self-employed, it’s important to show the lender that you still have a stable income and can repay your loan.

It's likely to ask for bank statements and/or your tax returns. This will reassure it that you do have the means to keep on top of repayments.

Make sure you can afford the finance

It’s all well and good providing evidence of your income, but can you definitely afford the car finance you’re applying for? Circumstances change, and you need to make sure you won’t struggle to pay in the event that this does happen.

For example, if you’re expecting a child soon and will have higher outgoings – plus maybe some time off work – could you still afford the monthly payments?

Taking a look at your budget and future plans before you commit is really important.

What’s the best way to get car finance if you’re self-employed?

Self-employed people can apply for the same type of car finance loans as anyone else, they might just have a few extra steps before approval.

The most popular kinds of car finance are Personal Contract Purchase (PCP) and Hire Purchase (HP).

PCP car finance for self-employed people

A PCP car finance deal spreads the cost of the vehicle’s depreciation value, and you’ll need to pay a final ‘balloon payment’ to take full ownership.

You can also decide to return the car and get something new, so you’ll have a bit more freedom than other types of car finance.

Self-employed people can apply for PCP car finance, but you’ll just need to provide those extra documents if necessary.

A solid credit rating can also be helpful.

HP car finance for self-employed people

HP car finance lets you spread the cost of the car’s full value across monthly payments, and it’ll be yours to keep once you’re all paid up.

Unlike PCP car finance, there’s no ‘balloon payment’ at the end of the contract, and you’ll automatically be the owner of the car – your final payment will include an ‘option to purchase’ fee, however.

HP car finance is a good option if you know you’ll want to keep your car, but the monthly payments are usually more expensive since you’re covering the full value.

Self-employed people can also apply for HP car finance, but should always be sure they can afford the full number of payments before going ahead.

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