Whether you are a salaried individual or a self-employed professional, buying a car is an innate aspiration that you want to accomplish. You may be fixing your joints to apply for a car loan, where every individual, whether employed or self employed borrower, needs to meet some eligibility criteria.
Going for a self employed car loan is not that big of a deal, it’s just the paperwork in this case can be a bit different. Self-employment business or any freelance work can also hit the canon of success, as Todd Stocker says, “Everyone is self-employed and your employer is you”.
Self-employed car finance
When it comes to buying a vehicle, you can just ride over the wheels with nothing to worry about, only if you have sufficient bucks to do so. When it comes to car finance, there is a way to do it, and for a self employed car loan, the query is a bit different.
The basic requirement for every self employed borrower is to prove your income to the lender so that you are reliable as a borrower. You can prove your net income after deductions to auto loan providers by showing tax returns from the last couple of years, or through bank statements. Even bank statements from the past few months say 6, can be worth having.
Self-employed car loan requirements
There are certain eligibility requirements for a self employed borrower to fulfill:
- 18 years is the least minimum age bar for any applicant
- For the maximum age bar at the end of the loan term, the applicant should not be more than 75 years of age
- While there can be variations to this eligibility, an applicant should show some relevant experience in the business for the business car loan
- Recent ITR papers are also considered during the self employed car loan
- The income required depends on the car model which you are planning to buy
Documents required for self-employed car finance
There are some documents that are duly required for a self employed borrower during the financing of a vehicle
- An application form filled by an individual along with a passport-sized photograph
- Age proof and ID proof national ID cards bearing your signature and photo
- Address proof, which can include an ID card, rental, or lease agreement
- Income proof like your bank statements for the last 6 months
- Address proof of the firm you are connected with, like a Utility bill, Establishment Act of Certificate Sales Tax Certificate, SSI registration certificate, and copy of shop along with contact details of clients
- Rate list or invoice
- Post sanction documentation and duly signed agreement with RTO set
- Receipt including margin money or down payment amount
Good credit score and credit history
This is common for both salaried or self employed borrowers where maintaining a good credit score is adding to your credibility when applying for a car loan. A self employed individual needs to maintain a strong credit score in order to score a high-quality car loan, with a feasible rate of interest. If your credit score is not up to the mark, try to pay your bills on time along with trying to decrease your debt load as your credit report will show all the details of your outstanding payments.
Car buying options: Where to get financing for self-employed borrowers
If you have all the documents required for a car loan along with having a good credit score, you can visit a bank or auto loan provider to help you complete the process. But in case of bad credit, you can have two options: a subprime lender or a BHPH (buy here pay here) dealership. The first preference should be given to a subprime lender where you can take an auto loan, finance your vehicle and build your credit score as well. A subprime lender specializes in dealing with consumers that are having low credit scores, even though they also check your credit before approval.
Other than that, you can choose a BHPH lender, provided that you are rejected by a subprime lender or need a car loan quickly. BHPH lenders don’t check your credits, but rather offer in-house financing (not involving any third-party lenders). However, keep in mind that you won’t be able to improve your credit scores here as they hardly report on on-time payments, and also offer older car models.
Features of self-employed or business car loan
- A self-employed applicant can get his loan sanctioned in less time as there is not any endless or comprehensive documentation, except for some personal information when it comes to online applications.
- It is easily accessible and authorized, which makes it a popular choice for self-employed people.
- When it comes to the rate of interest, it is generally low compared to other financing options.
- The loan amount is directly credited into the account of a borrower when he has qualified for the loan.
Conclusion
Being a self-employed individual means you have flexibility and freedom in your work life, where there is a misconception that securing a loan for such people can be a tricky trip. However, If a self-employed person has a decent income and a good credit score, he can get approval for his car loan. Any self-employed applicant can also calculate his monthly EMIs on his car loan using our Car Loan EMI calculator.
FAQs
Is it better to lease or buy a car when self-employed?
If we come to leasing, it is usually cheaper than buying a car, but there can be mileage restrictions and a prescribed time period for a particular vehicle. When it comes to buying, there are no restrictions on the mileage, but there is a loan amount that is to be paid.
How do I purchase a car as a business expense?
A self-employed person can obtain a business tax deduction when using his personal car for business purposes. If you are a self-employed person having your business that leases or owns a car, you can determine the business use of a car and purchase a car as a business expense.
Can I write off my car payment as a business expense?
You can get through the whole or a part of the purchase price on a new car for your business expense by taking a special section 179 deduction, which allows you to deduct up to the entire cost of the vehicle in the first year, provided you are using it primarily for business purposes.
Is car insurance cheaper if you are self-employed?
Car insurance can be cheaper if you are self-employed, provided you use the vehicle for business which decreases the auto insurance rates and other costs of a business expense. Besides, keeping a mileage log can make the deal cheaper when you need to communicate with your insurance provider.