Best Ways to get car finance for bad credit as a Self-employed

Self-employment is becoming common in the country, with many people taking the plunge to become independent business owners. While it is great to be your boss, other life aspects get difficult to cope with.

One of those aspects is taking out and qualifying for car finance as a self-employed. Getting car finance as a freelancer is challenging. Most lenders require consistent income proof to ensure you can pay the loan comfortably with regular payments.

However, as a self-employed, one can hardly ensure regular income proof. Most self-employed do not qualify. It is important to improvise on your finances and analyse the lender’s requirements before applying for car finance.

Things get challenging if you need self-employed car finance for bad credit. It will be a good idea to check your credit score and other aspects like- income and tax filing to get a nod from the lender.

Yes, there is a lot you can do to improve your prospects for car finance with bad credit history.

How to get car finance as a self-employed with poor credit history?

There are a few things that you can do to get accepted for car finance as a self-employed.  Lenders are now more flexible and eager to accept applications with low-risk profiles. So, just minimal preparations from your side to get the car of your dreams. Here are some most tested ways to get car finance as a self-employed for bad credit but stable finances:

1) Try to pay off some debts

Before applying for the loan, understand whether you can clear some debts in the credit profile. CCJs, loan defaults, or bankruptcy states bad credit and stays long.

But if you clear debt, you may improve your credit score. Check your credit report for delinquencies, errors, and any glitches impacting your credit score and report it to the credit agency.

Apart from this, ensure the following to improve your credit score as a self-employed:

  • Remove your account from a joint account, have poor credit
  • Get your name on the electoral roll
  • Have separate personal and business accounts

2) Prove your income as a self-employed

Lenders may accept your application if you can reveal recent trading accounts. If you have not received substantial sales in the past few months, you can reveal the bank statements of the last deal. After that, if the lender asks for additional proof, provide the below documents as proof of authentic business:

  • Form 1040
  • Schedule C
  • Schedule SE
  • 1099

You may reveal pending invoices and upcoming project proof to get reduced rates for bad credit car finance.

Some lenders do not accept tax returns in cash as a reliable income form. Any payment you receive as a self-employed should be on record. If you have not added the cash payments to your account, it should be in the spouse’s name or in the business partner’s name (if any). In this case, you need to add them to your finance application.

Sometimes, it may work in your favour, as if your partner and spouse have a good credit history, you may get better rates.

3) Check out a guarantor car finance

It is important to reveal that you can make regular payments on a car finance deal as a self-employed despite a bad credit profile. For self-employed getting an ensured independent car finance deal with bad credit is tricky. Thus, you may get car finance if you have someone that can guarantee the payments by providing sufficient proof of recent finances and credit score.

Moreover, you may get affordability loans with no credit check from a direct lender by having a guarantor with stable finances. These loans are short-term loans that one may fetch without detailed credit screening. You can check these loans if you have low finances and bad credit but need urgent cash to legalise the proceedings. A guarantor is mandatory here if you have not received any business for 6 months and cannot arrange a deposit.

4) Put down a larger deposit

A high deposit reveals your potential to pay the remaining amount comfortably. It not only helps you get approved for the loan but also helps with finalising low interest and repayments. If you have been saving for car finance after analysing and researching the deposit requirements, you may get the best quote.

A deposit reduces the risk on the lender’s part. He approves the application for used or new car finance. It is especially beneficial if you need car finance on bad credit. Getting affordable terms implies that if you make regular loan payments, you may achieve an ideal credit score.

For example, if you clock a bad credit car finance deal of £40000 and pay £20000 as a deposit, you have to ultimately pay £20000 along with reduced interest costs and fees (£23000) (approx.) within the loan term. 

However, do not tap it if it may disturb your bottom line. It may not be worth it. The lenders may reject the application if the deposit hinders your payments or if there are minimal lifestyle requirements.

5) Be accurate with the application details

 Do not make repeat applications if you miss a detail or two. It may hamper your chances for car finance. Instead, analyse every detail you file before clicking apply.

 Check the spelling and details as mentioned in authentic proof like- a driving license, ID, passport, etc. Lenders reject the application if they find details that do not match the authentic doc.

 Thus, always check the details and file apt applications true to your knowledge and belief.  

Check whether you need only that amount for car finance by analysing your income and other liabilities. Individuals with responsible mortgage payments and bills may catch the lender’s attention. If you pay them regularly, you may get quick car finance.

6) Provide authentic and permanent address proof

You should provide authentic address proof whether you have a small office space in the country or operate from home. Your name on the electoral reveal’s other details too. It includes a residential address. Thus, provide the business address to qualify for car finance.

If you are a tenant or moving from one address to another or shifting places, it limits your chances for a car finance deal. Thus, ensure a permanent address before applying for car finance for self-employed with bad credit with the best lender.

7) Consider the purpose you want the car for

It is really important to analyse and ensure a purpose before checking the car finance quotes. It matters the most to the one providing you with the quote. Thus, analyse:

  • Whether you want a new or used car
  • What business purpose do you want to meet with the car?
  • Would it be worth getting a car for that purpose?

Cars used for business purposes usually accrue high mileage. You cannot choose a car finance type with mileage restrictions.

For example, if you need a car with good mileage support to transfer manufactured goods to the selling place, you should seek a Hire purchase agreement Instead of a Personal Contract Purchase (PCP) that comes with a mileage limit. In Hire purchase, you can drive without worrying about mileage.

Bottom line

So, what’s the best way to buy a car on finance as a self-employed? It entirely depends on your finances, credit score, and purpose. You may get better rates if you have a bad credit history but a heavy deposit. Alternatively, a guarantor may help.

According to experts, the best way to bad credit car finance is to wait and work on your profile for 12 months. Analyse how you can strengthen your finances and credit profile to fetch better rates as a self-employed.