Self-employed workers often do not earn a standard salary like a permanent employee would. So what does this mean when it comes to getting approved for a car loan?
Most lenders require borrowers to submit certain documents with their auto loan application to prove that they will be able to repay the loan. This usually includes payslips that show consistent, stable income and long-term employment.
If you are self-employed, you are unlikely to have payslips, or even earn a regular income. Which can make it a bit more difficult to apply for car financing.
But as long as you are able to repay the loan amount that you want to borrow, there are options that can help you get a car loan.
Low doc auto credits
Some lenders offer low doc auto loans to those who do not have all of the standard documents typically required for an auto loan application, such as the self-employed.
Instead of payslips, lenders can accept other documents attesting to the borrower’s ability to repay the loan. This could be a letter from your accountant, Business Activity Statements (BAS) and / or other forms of proof of business income.
While low doc auto loans can make it easier to apply for finance for those who work for themselves, they pose a higher risk to the lender, which means they will usually have higher interest rates.
It should also be noted that lenders may be more willing to approve an independent borrower for a secured car loan than an unsecured car loan. A secured car loan requires the borrower to provide an asset as collateral for the loan – usually the car itself. This reduces the risk for the lender as he may be able to sell the asset to recover the money lost in the event of default.
A good credit score will usually also work in your favor when it comes to getting a low doc car loan. A strong credit history can reassure the lender by showing that the borrower has positive credit behaviors and has a good reputation for repaying debts, regardless of employment status.
Auto mortgage loans
Self-employed borrowers who need a vehicle for business purposes might want to consider a chattel mortgage. A chattel mortgage is a type of auto financing specifically designed for business owners. It covers the cost of vehicles that are used for the business at least 50 percent of the time.
Chattel mortgages are only available to companies who can prove the vehicle is for business use and report to the Australian Taxation Office (ATO).
This type of auto financing can allow you to take advantage of various tax deductions not available to consumers. However, for this reason, independent traders and business owners are not protected by the National Consumer Credit Protection Act (NCCP) as a consumer would be.
Another alternative to a chattel mortgage that might be worth considering is a commercial hire purchase. However, it is not technically a car loan, as the lender retains ownership of the vehicle until the loan and interest charges have been paid off in full.