While there are a lot of advantages to being self-employed, unfortunately, it can make borrowing any form of credit more challenging. From mortgages to vehicle finance, self-employment can mean endless paperwork and hurdles to overcome. And if you have a bad credit history, self-employed car finance can be even trickier. You may be able to find a vehicle finance provider that can help, even with a low credit rating.
Car Finance for the Self-Employed
There are just under five million self-employed people in the UK, and with the unpredictability of wages that often comes with self-employment, spreading the cost of a vehicle through car finance can be a great option. Borrowing can be a more complex process for self-employed individuals though, especially when it comes to properly organising your finances! However, your choice in career shouldn’t stop you from buying your dream car!
Most lenders these days understand that people who are self-employed have to be good at budgeting, and can therefore afford to get a car on finance. There are various ways to prove your earnings too - not just a monthly payslip from an employer. So if you work for yourself, and want to know what vehicle loans are available, you can get a quote with no impact to your credit rating!
Is Self-Employed Vehicle Finance More Difficult to Get?
Before any loan is approved, it’s the responsibility of the lender to run affordability checks, to ensure that the borrower is able to maintain the due payments without putting themselves into difficulty. This is part of what makes a responsible lender, as laid out by the Financial Conduct Authority’s (FCA) guidelines.
In order to conduct these checks, lenders need to see things like your monthly expenditure, as well as evidence of your income. For most people, the latter is as simple as sending across a recent payslip, but for self-employed borrowers, it can be a little bit more complicated. To make it easier, most of our lenders will just ask to see the last three months’ worth of your bank statements - they can then calculate your average monthly income.
Will I Need to Prove My Monthly Income?
As mentioned above, most lenders will require some form of proof of earnings, whether you’re employed, self-employed or solely in receipt of benefits. Being unable to easily prove what you earn can make applying for car finance harder - it’s simpler if you have the right paperwork!
The best way to show how much you earn will generally depend on the lender and what category of self-employment you fall under. You may be a sole trader, work in a partnership, or head up a limited company. The majority of finance providers will ask to see bank statements, but a few may request tax returns too. Open banking is typically the preferred method of checking your bank statements - don’t panic, this doesn’t mean lenders have access to your bank account! It’s simply an electronic way of sending across the data, without having to download copies of your bank statements.
Self-Employment and Bad Credit
You may think that the combination of self-employment and bad credit would make getting car finance impossible! The sad truth is that these things often come hand in hand, as having a fluctuating income tends to make sticking to monthly payments difficult. But there are a number of lenders who specialise in bad credit self-employed car finance, so don’t assume that you won't be eligible!
Even if you’ve been declined elsewhere, we may be able to help. Whether you’re looking for smaller monthly payments, and want to opt for a Personal Contract Purchase (PCP), or essentially just wish to spread the cost of a vehicle through Hire Purchase (HP), many of our lenders will consider your application regardless of your credit history.
And if you’re able to keep to the due instalments, you may even be able to build up your credit score. This is because making regular payments on time demonstrates to other lenders that you’re able to manage your money well. Once you’ve improved your credit rating, you should then be eligible for other forms of credit, as well as lower interest rates.
Getting a Self-Employed Car Loan
A lot of more traditional lenders ask for additional paperwork when you’re self-employed. But with us, we do our best to make the process as straightforward as possible. Simply complete our short online application, and we’ll search our network of lenders to try and find a suitable car finance provider for you.
It’s good to keep in mind that you may be able to improve your chances of approval by boosting your credit score. There are a number of simple ways to do this - we’ve listed a few below to help you get started:
- Register on the Electoral Roll: You may not realise that by registering on the electoral roll and confirming your address, you can potentially improve your credit score
- Check for Inaccuracies on Your Credit File: While this isn’t too common, it’s good to check your credit report regularly, via Experian, Equifax or TransUnion, to make sure there are no mistakes. For instance, a loan could be showing as open when it’s been settled
- Pay on Time: If you're able to make your payments on time, this can demonstrate that you’re responsible with money, and should increase your credit rating
- Settle Old Debt: Closing older accounts, especially ones you’re no longer using, can also boost your credit score