Car loans for the self-employed

25 Nov 2016

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There are a range of options for car loans for the self-employed. What needs to be established first is whether the vehicle will be used for business purposes, and if so, what proportion as a percentage would be business usage.

If the vehicle will be used for more than 50% business use, then there are a range of different finance types that could be utilised, the most common being the Chattel Mortgage and a Commercial hire purchase agreement. These loans are not regulated by the National Consumer Credit Protection Act which can make the application process simpler and faster.

For an unregulated loan, lenders can be a lot more relaxed as the same disclosure and requirements are not required for a business use loan.

If the vehicle is predominantly personal use, then the option would be for a Consumer Loan only, which is regulated under the National Consumer Credit Protection (“NCCP”) Act. There is a whole different level of disclosure applied to regulated loans, which is in place to protect the consumer and help them understand all about the loan prior to entering into any formal agreement. This can introduce additional complexity for the self-employed.

For an unregulated loan, lenders can be a lot more relaxed as the same disclosure and requirements are not required for a business use loan, as they are not regulated under the NCCP Act. Some lenders will even offer no-doc or low-doc loans; where the borrower would not have to provide any proof of income in certain circumstances. For example when there is significant equity from the trade-in or a cash deposit, when the business owns real property, or if the business has repaid a similar loan in the past.

Outside of these requirements, generally proof of income would need to be in the form of tax returns for the last available financial year as well as financial statements if available. For a regulated Consumer Loan, full proof of income will be required to assess the loan for any client, whether they are an employee or self-employed. Lenders may require additional documentation to be certain the income and expenses are accurate to assess affordability. For a self-employed client, this could include two years of individual tax returns if they are a sole trader or additionally include financial statements if the business is arranged as a company or trust.

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