Self-Employed Car Loans: Requirements & Tips

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A big part of getting preapproved, working through the auto financing process, and getting a loan for a car is proving to your lender that you will be able to pay back the loan.

Proof of income (POI) is essential during this process, which will be handled differently depending on your type of income.

Can I Buy a Car if I’m Self-Employed?

Yes, you can purchase a vehicle if you’re self-employed or a 1099 employee.

If you have the money to purchase a car outright, then you don’t have anything to worry about in terms of navigating income documents and working with a dealership.

However, if you want to get a car loan and finance the vehicle, there are some key differences from standard W-2 employees.

How is Getting a Car Loan When Self-Employed Different?

Generally, the vehicle financing process is the same regardless of your income source, in terms of working with a dealership, selecting your vehicle, and making payments. 

With any source of income, you’ll need to be able to prove consistent and reliable funds in order to obtain financing from a dealership. The difference lies within the documentation that is required during the purchasing process.

For self-employed individuals, income can often fluctuate from month to month, which can make it difficult to get a loan for a car. Lenders view buyers that have consistent income as a lower risk, so if you’re self-employed, you may be asked to provide a longer history of income or additional documents.

Self-Employed Car Loan Requirements

All of the standard requirements for auto financing are applicable to self-employed individuals, such as:

  • Proof of income
  • Proof of residency
  • Credit approval
  • Proof of ID
  • Proof of insurance

The way that self-employed car buyers provide proof of income is the key difference.

Self-Employed Proof of Income (POI)

You can show POI in the form of tax returns, bank statements, or pay stubs. In addition, lenders will want to see that you have a steady job history. If you’ve only been self-employed for a short time, you may have trouble getting approved for a loan.

However, if you can show that you have a consistent income and a strong work history, you shouldn’t have an issue.

When reviewing your Schedule C, the lenders will consider your net profit as your qualified income, being that business expenses and deductions are not taxable income that you could use towards the purchase of a vehicle.

Depending on the lender and your individual circumstances, the requirements can vary slightly. Discussing these requirements with the lender is important, but coming prepared with the following is generally acceptable to most dealerships.

  • Previous 2-3 years’ tax returns
  • Previous 6 months of bank statements
  • Schedule C
  • Form 1040

Does My Credit Score Matter for Self-Employed Auto Loans?

Your credit rating can dramatically impact the process of getting a car loan as self-employed or a 1099 employee.

If you have excellent credit, it is common that POI requirements and other documentation needs will be a bit more relaxed. This is because to get a car buyer approved for financing, it all comes down to the lender determining the risk involved in lending money.

If you’re buying a car with bad credit, proof of income becomes critical in obtaining an auto loan, because that is what will show the lender that you’re financially able to repay the loan.

Subprime lenders, who specialize in assisting bad credit car buyers, are a great option for getting a loan. However, if you’ve been turned down, you can also consider other in-house financing options from buy-here-pay-here (BHPH) dealerships as a backup plan.

Proof of Income is the Key for Self-Employed Car Loans

Whether you decide to seek auto financing at a large franchise dealership, a small BHPH car lot, or anything in between – you’ll need to prove your income. Even if you’re looking for a car loan on a low income, you still have options to explore if you have the right documentation.

If you just started out being self-employed or are unable to show consistent reliable income, you may have trouble financing a vehicle until you’re able to do so.