While unemployment has reached record highs this year, we have also seen an increase in the number of people becoming self-employed by starting to work as a freelancer or taking up a side job in an effort to earn extra money. What does this mean in terms of being able to take out a car loan?
Prove your income as self-employed or self-employed
One of the cornerstones of being approved for a car loan is proving that you have enough income to pay for the vehicle. With a W-2 income (when working for someone else) it just means having a recent pay stub that proves monthly income that meets the lender’s minimum requirement and shows your income since the beginning of the year.
For people who are self-employed or freelancers, this means you have a 1099 income (when working for yourself or being a contractor). Some lenders may not accept borrowers who are self-employed, and whether or not they do may depend on your credit score.
Borrowers who are self-employed may need to provide copies of their tax returns to prove their income. However, if you have good credit, a traditional auto lender may not ask for them. They can only ask for bank statements or deposit slips as proof of income.
However, expect to need more if your credit is poor.
Proof of self-employment income and subprime lenders
For borrowers applying to a subprime auto lender for their next auto loan due to a lower credit score, proof of income is an important consideration. Subprime lenders look for stability in their borrowers outside of their credit score, which means they typically check work history and income to determine your suitability for a car loan.
If you are self-employed or a freelancer with bad credit, expect a subprime lender to ask you for two or three years of your tax returns to prove that you can meet the income requirements. Your tax returns also prove that your income is taxed and declared.
Many people wonder if you can use bank statements to prove your income with a subprime lender. Unfortunately, bank statements don’t show that your income is reported, just that it’s deposited into your account, so subprime lenders almost always won’t accept them as proof of income.
Your tax returns can also prove your work history, as they can indicate a consistent source of income. Many subprime lenders look at your employment history going back three years and generally require that you have been in your current job for at least six months to a year.
Although subprime lenders have strict requirements for their auto loans, all to ensure that you have the ability, stability, and willingness to handle the loan. Their car loans are also reported to the credit bureaus, which means there is a chance for credit repair with timely payments.
If you can’t prove your income or work history with tax returns, you may need to research other car loan options.
Self-Employed and BHPH Dealers
If your credit score is low, you’re self-employed, and your tax returns don’t prove your income, you’ll likely need a Buy Here Pay Here (BHPH) dealer to get a car loan.
BHPH dealers have a dual role as they are also your lender. All car purchases and financing are done in one place, so it’s a one-stop-shop experience. The biggest advantage of these dealerships is that they generally don’t care what’s on your credit reports, so a lower credit score wouldn’t come between you and a vehicle.
These dealerships are often not as concerned about where your income is coming from, as long as you have enough money to prove you can afford the car. Since BHPH dealers don’t have to rely on a third-party lender to approve you for financing, they tend to have their own means of verifying income.
Some requirements of a BHPH reseller usually include a down payment and some form of proof of income. On average, BHPH dealerships tend to charge higher than average interest rates on their car loans, so this is something to keep in mind. BHPH dealerships may not report your car loan to the credit bureaus, so ask about their reporting practices if you are concerned about credit repair.
Ready to find a dealer?
Finding the right lender for your income situation can be difficult, especially if you have credit issues. However, finding the right lender doesn’t have to be a problem, and we want to help.
Here has Auto Express Credit, we have created a network of dealers that extends across the country. We match borrowers with bad credit to dealerships who are registered lenders who work with unique credit situations. Get started now by filling out our free auto loan application form, and we’ll find a dealership in your area with no obligation.