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 is a range of different loan types that could be utilised and to name the main loan types would be Chattel Mortgage, Commercial Hire Purchase or Finance Lease. There are some variations on Lease Agreements that could also be used. These loan types are unregulated loans.
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.
For a regulated Consumer Loan, full proof of income would be required to assess the loan for any client, whether they are an employee, or self-employed and lenders may require additional documentation to be certain the income and expenses are accurate to assess affordability. For a self-employed client, this may include two years individual tax returns, if they are a sole trader and if they are a company or a trust, two years company tax returns along with 2 years financials.
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. There are a range of options with some lenders, where the borrower would not have to provide any proof of income in certain circumstances such as significant equity from trade in or cash deposit, home owners or mortgagees, or when the borrower is paying out a similar loan when trading in, or if paid out within a certain time frame.
Outside of these requirements, generally proof of income would need to be in the form of tax returns for the last available financial year and financial statements, if any, would be required for self-employed borrowers.
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