Can I get a car loan if I am self-employed?
The self-employed often do not earn a standard wage like a full-time employee. What does this mean for auto loan approval?
Most lenders require borrowers to submit certain documents along with their car loan application to prove that they are able to service the loan. This usually includes payrolls that show consistent, stable income and long-term employment.
If you are self-employed, you are unlikely to have pay slips or even earn a steady income. This can make applying for car finance a little more difficult.
However, as long as you can afford the repayments for the amount of loan you wish to borrow, there are options available to help you secure a car loan.
Low Doc Car Loans
Some lenders offer low doc auto loans for those who may not have all of the standard documentation that is generally required on a car loan application, such as: B. Self-employed.
In lieu of pay slips, lenders may accept other documents that support a borrower’s ability to repay the loan. This could be a letter from your accountant, Business Activity Statements (BAS) and / or other forms of proof of business income.
While low doc auto loans can make applying for funding easier for those who work for themselves, they pose a higher risk to the lender, which means higher interest rates are typically set.
It’s also worth noting that lenders may be more willing to approve a self-employed borrower for a secured car loan than an unsecured car loan. A secured car loan requires the borrower to provide an asset as collateral for the loan – usually the car itself. This reduces the risk to the lender as they may be able to sell the asset to make up for lost money in the event of a default .
A good credit score also generally works in your favor when it comes to securing a low doc auto loan. A strong credit rating can add reassurance to the lender by showing that the borrower has positive credit history and a good reputation for paying off debts, regardless of their employment status.
Chattel mortgage car loans
Self-employed borrowers in need of a vehicle for business purposes might consider collateral assignment. A collateral assignment is a type of auto finance designed specifically for business owners. It covers the cost of vehicles that are at least 50 percent used for the business.
Chattel mortgages are only available to companies who can demonstrate that the vehicle is for business use and report this to the Australian Income Tax Office (ATO).
This type of vehicle finance can allow you to claim various tax deductions that are not available to consumers. However, because of this, sole proprietorships and business owners are not protected like a consumer by the National Consumer Credit Protection Act (NCCP).
Another alternative to a security assignment that might be worth a look is a commercial hire purchase. However, this is technically not a car loan as the lender retains ownership of the vehicle until the loan and all interest payments have been paid back in full.