Most people need a car to get from Point A to Point B, but when you’re self-employed, you need a set a wheels designed to impress. Meeting your most valued client in your aging, compact rust-bucket does not exactly scream out “I’m a success.” And arriving at a meeting an hour late due to “car troubles” is equally unacceptable.
You’ve been meaning to kiss your jalopy goodbye, but one thing has been holding you back. You have no idea how to secure a car loan when you’re self-employed.
Yes, you, too, can have a car that you love. Although maybe not as much as this guy.
There’s good news. Self-employed individuals are advanced car loans all the time–and with a little preparation, you may be able to get one too.
Have a Down Payment
The size of your down payment will play a significant role in determining your viability as a borrower. Not only does it prove that you have enough disposable income in order to set money aside, but it also decreases the amount of risk assumed by the lender. Do not, however, clean out your savings to bulk up your down payment. Lenders also need to see that you have money in the bank, plus you may need a safety net to make your payments during leans months.
Many experts recommend a down payment that equates to between 10 and 20 percent of the vehicle’s price. Others suggest that your down payment is large enough to ensure that you are not borrowing more than the car’s value. Your own personal financial situation, however, will be a key determinant.
If you are low on cash, here are a few tips to help you buy a car when money is tight.
Provide the Right Documents
Before you visit the car lot, spot the car of your dreams and fall in love, you need to make sure that all of your proverbial ducks are in a row. This means gathering up every piece of paper that you could possibly need. Here is a list that should keep the finance people happy.
1. Financial Statements. As a self-employed individual, you do not have the luxury of merely presenting the stub from your paycheck. Instead, you will need to bring all of your bank statements for the past year.
2. Tax Records. You will also need to bring along three years’ worth of tax statements including: Form 1040 (Individual Income Tax Return), Schedule C (Profit or Loss from Business), Schedule SE (Self-employment Tax), and Form 1099 (Miscellaneous Income).
3. Contracts. You may also want to bolster your case by providing contracts signed by clients for future income.
4. Proof of Residence. You will need to show documents that prove that you actually reside at your address. Mortgage documents and utility bills with your name and place of residence should suffice. DO NOT bring delinquent bills or late payment notices as proof.
5. Driver’s License and Proof of Insurance.
Clean up Your Credit
It is always a good idea to keep an eye on your credit report–even if you’re not applying for credit. This will ensure that you don’t have any smears against you that have been reported in error or belong to someone else. If you do spot errors, take steps to have them fixed immediately.
A good credit score greatly enhances your ability to borrow, so it is important to remit bill payments on time and keep your debt load at a manageable level. If you do have poor credit, you may still qualify for a loan with a higher interest rate or a co-signer.
By following a few easy steps, it is very possible to secure a car loan when you are self-employed. So bid “farewell” to your clunker and drive away in a ride that gives you pride–and impresses your clients.
What advice can you give an entrepreneur trying to secure a loan?
Kimberley Laws is a regular contributor to HowDoYou.com and the author of two blogs, The Embiggens Project and Searching for Barry Weiss. A "Jill of all trades," she is a High School English Teacher and Certified Career Counselor with a background in makeup artistry, retail banking, and graphic design. She is also a scrapbooking, PEZ-collecting, car enthusiast who loves travelling and New York City.
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