If you are self-employed, the flexibility of your work may mean your wage earnings are not as frequent as those who are permanently employed. While that’s okay, when it comes to finance, this can mean your options may be limited. If you are self-employed, here we’ll take a look at your car loan options available to to help get you and your new set of wheels on the road sooner.
I’m self-employed: What are my options?
When obtaining finance for a vehicle, the lender will generally ask if the vehicle will be used for personal or business use. If the vehicle is mainly to be used for personal use, a consumer loan is likely to be the best option for financing your new car purchase.
A consumer loan or car loan is finance regulated by the National Consumer Credit Protection Act (NCCPA), meaning consumers are safeguarded when applying for credit. Consumer car loans are typically secured loans, meaning the loan is secured to a tangible asset being the car.
If you secure your loan, it is likely you can afford to borrow more and gain approval faster, as the lender has the car as collateral should you be unable to pay back your loan.
Before being approved, you will have to provide bank or financial statements proving you can pay the loan back. Being self-employed, this may also include individual tax returns as well as company tax returns for the past two years.
For a range of competitive secured car loans, be sure to check out a number of car loan offerings from carloans.com.au.
Some lenders will offer low doc car loans to those self-employed. This means in place of pay slips, lenders may accept other documents such as a letter from an accountant, Business Activity Statements (BAS) or other forms of proof of income to support a borrower’s ability to repay the loan.
Low doc car loans may make it easier for those self-employed to apply for finance, however they come with a greater risk and generally have higher interest rates attached.
Designed for self-employees who use their vehicle more than 50% of the time for business purposes, chattel mortgages are essentially secured car loans for businesses. This means that the vehicle intended to be purchased is used as security in the case that you are unable to pay back your loan.
A chattel mortgage allows you to claim various tax deductions not available to everyday consumers, however, self-employees are not protected by the National Consumer Credit Protection Act (NCCP).
Designed for business use, a business loan can be taken out to fund business purchases, including cars. Like a personal loan, business loans can be more flexible than chattel mortgages in that they can be either secured or unsecured. The interest costs on a business loan can be tax-deductible, as are things like the car’s depreciation costs.
Typical self-employed loan requirements
The minimum requirements for a car loan if you are self-employed will require you to provide proof of income in the form of tax returns for the latest financial year as well as financial statements if available. For a regular consumer loan, full proof of income will usually be required to assess the loan regardless of whether they are an employee or self-employed. This also includes statements of assets and liabilities.
Lenders may require additional documentation to be certain the income and expenses are accurate to assess affordability. For those self-employed, this generally includes two years of individual tax returns, and could additionally include financial statements if the business is arranged as a company or trust.
Factors to consider
Before signing on the dotted line, there are a number of factors to consider when it comes to car finance. Being self-employed, it’s important to first determine whether the vehicle will be predominately used for personal use or business use. From there you can determine the finance option that may be best suited to your financial position, personal and business circumstances.
If you’re planning on making extra repayments or potentially paying off the loan early, check the loan terms to see if the lender will allow this. If they don’t, it could end up costing you more down the track, or you might be stung with fees you weren’t aware of. Further, if the car is purely for business purposes, consider the risk it may place on your business if you were to potentially default.
How to apply
To apply for a car loan being self-employed, the following must occur:
- Decide on a loan type.
- Evaluate the market and decide on a lender that best suits your needs, as well as a loan that does the same.
- Submit the relevant paperwork the lender requires including proof of identification, details of car, proof of income, tax statements, other business details.
- Wait for the lender to evaluate your loan application.
- Provided the lender approves your application, they will transfer the money to the necessary party and/or account, and you’ll soon be in possession of your new vehicle.
If you are self-employed and looking for a new set of wheels, our team of friendly car loan specialists can assist in helping you determine the right product for you to get you on the road sooner. Be sure to chat with one of them today!