February 9, 2016
How to Get a Car Loan When You’re Self-Employed
Working for yourself can be great, but it also presents challenges that most workers don’t face. One of the biggest is getting approved for a loan when you don’t have traditional proof of income. At The KEY in Oklahoma City, we work with self-employed car shoppers regularly. There are some differences in the way you get approved for a loan if you’re self-employed, but rest assured it is possible.
The Problem with Traditional Loans for the Self-Employed
Most auto loans require you to have proof of income when you apply. This isn’t difficult for someone with a salary or a full-time position. For a worker who works for themselves or as a freelancer, though, it can be tough.
When you don’t have proof of a steady income, lenders fall back on other methods to determine your creditworthiness. Most lenders will ask you for two years of tax returns that demonstrate your income.
Self-employed buyers can run into problems, though, if they don’t have two years of self-employed tax returns. They might also have a problem if they have too many deductions on their taxes. Claiming a lot of deductions can lower your tax burden, but it also reduces your apparent income. Claim too many deductions and you’ll have a hard time getting a loan.
It can also be harder to qualify for a loan when your credit isn’t great. If you have bad credit and you’re self-employed, most lenders won’t want to work with you. They’ll see you as a credit risk or a tax-dodger.
How The KEY Can Help
At The KEY in Oklahoma City, we specialize in helping buyers with poor credit and limited work history get into a quality car. If you’re self-employed, you can still get a car at our Oklahoma City dealership.
Contact us today to learn more about how we can help you find a great used car when you’re self-employed. Just call (405) 526-7010 today to get started!
Qualifying for a Loan
In addition to working with our special financing car dealership, you can also work to improve your creditworthiness in other ways. Here are a few tips for getting a loan when you’re self-employed:
Improve Your Credit Score. One of the best ways to make yourself look better to lenders is to repair your credit problems and raise your score. This can be a time-consuming and difficult process. It’s also absolutely worth it.
Put Together a Large Down Payment. Down payments are a good way to reduce a lender’s risk. They also demonstrate a level of financial security. For regular buyers, a down payment of 10% to 20% is average, but you’ll need to beat that by a good margin if you have poor credit. At The KEY, our down payments are as low as $0 down (with approved credit), but can range up to $1000.
Work for Longer. It’s important to lenders that you show security and dependability. Having a longer work history is a good way to achieve that. You may just have to be patient and earn some more money to qualify for a loan.
Don’t Take Too Many Deductions. It’s important that your tax returns show some income. Don’t deduct all your income as business expenses. It might save you some money on taxes, but it will also make you ineligible for most loans.