Car Financing Advice for the Self-Employed
It is estimated that 45 percent of Canadians will be self-employed by 2020. Being self-employed is great, and itâ€™s probably everyoneâ€™s dream. The freedom you get from being your own boss is limitless but so does the responsibilities.
This is because lenders know that salary earner have a stable source of income compared to most entrepreneurs. Since they love being guaranteed that a loan will be paid, the instability of most self-employed people doesnâ€™t work for them.
What hinders you from getting a car loan as a self-employed individual?
Inability to verify income
Lenders need to know how much you make monthly or per year to be able to determine if you are eligible for a loan. Most business owners have varying amounts of money they earn each month which makes it more difficult to verify their income.
It becomes worse if there were months when you made nothing from your business. This instability tends to push lenders away.
High Debt to income ratio
This is a significant factor considered by lenders. If you have a high DTI ratio, you are going to get rejected by loan providers. To calculate your DTI, add your monthly expenses and divide it by your pre-tax earnings.
This is another major issue for business owners. There are a lot of deductions made to self-employed incomes, and this is a problem because lenders focus more on income after deductions. In many cases, the person could earn big before deductions and have a ridiculous income after deductions.
How to get car financing as a self-employed individual
Yes, securing an auto loan is difficult if youâ€™re self-employed but itâ€™s not impossible. Here are a few things you can do to improve your chances;
Build your credit score
If you are dealing with bad credit, then you should start paying your debts on time, report any invalid information on your credit history, make your accounts current and use Experian boost to get credit on phone bills.
Have all necessary documents
Monitor your financial records and ensure you have all the required documents before applying for a loan. Materials such as a valid ID card, bank statements, and proof of residence and insurance. This will earn you the trust of lenders and avoid any further confusion.
Choose the right lender
Before you apply for an auto loan, research to find out everything about the lender. They determine if you get the loan, so itâ€™s advisable to know if they have an excellent customer review, honest sales methods, customer-first mentality, and a good support system.
These three steps will help increase your chances of getting the loan you want.
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We hope these self-employed car financing tips helped clear up any misconceptions about the loan process, If you’re ready to get started, just fill out our application form below.
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