Car finance for self-employed people: how to get approved

Are you self-employed and looking into applying for car finance? Learn your options and how to get approved.



The world of car finance can seem cryptic and secretive. But at the end of the day, lenders only really want one thing. They want to know you'll pay their money back on time.

This goes for all applicants, whether they're employed, self-employed or on benefits. To get approved, you need to demonstrate financial reliability.

For self-employed people, this means gathering documents to prove you have a stable income. But that's just the start.

There are other steps you can take to increase your chances of approval. Some of these steps are specific to self-employed people, while others apply to everyone.

Here at Zoomo, we specialise in bad-credit car finance applications. We pride ourselves on getting people on the road regardless of their financial history.

So, what should you do to get approved for self-employed car finance? Let's take a closer look.

The importance of paperwork

The most important thing you need to do as a self-employed person applying for car finance is to show that you have a steady source of income. The way to demonstrate this is by assembling relevant paperwork.

Your folder of paperwork (digital or manual) should include:

• Your two most recent HMRC tax calculations
• Your two most recent HMRC tax year overviews
• Three to six months of personal and business bank statements and invoices
  
  

Alongside these key documents, you may be asked for proof of identity, proof of address and your accounts.

Most lenders require you to have been trading as self-employed for at least one year. Two years is often the minimum trading history for the best rates.

What can I do to increase my chances of getting car finance approval?

As we say, the most important thing for you to do when applying for car finance as a self-employed person is getting your paperwork in order. Nevertheless, there are further steps you can take to boost your chances of approval.

1. Get your accounts in order

Make sure your accounts and tax returns are up to date. These documents act as evidence of your income and your ability to pay back the loan.

Relevant documents include:

• SA302 tax calculations from HMRC
• Self-assessment returns
• Business bank statements
  
  

2. Work on your credit score

Remember that lenders are most interested in your creditworthiness – more so than whether you're employed or self-employed, in fact.

This means you should take steps to improve your credit score where possible. The key ways to do this are to pay all your bills on time and reduce outstanding credit card balances. You should also ensure you're registered on the electoral roll as this is viewed favourably by credit agencies.

3. Offer a larger deposit

To improve your chances, you may want to consider increasing your deposit. A larger deposit reduces the overall amount you're borrowing, which lowers the lender's risk.

As well as increasing your chances of approval, this can result in a lower interest rate.

4. Stay money-healthy

Fourthly, you should make a concerted attempt to make your bank statements look healthy.

In practice, this means staying out of your overdraft and making all payments on time three to six months before you apply for car finance. Remember: you're sharing your bank statements as proof of your creditworthiness, so they need to look as creditworthy as possible.

5. Pay off debts if you can

Lenders look at your existing debt commitments: credit cards, personal loans, buy-now-pay-later arrangements and existing vehicle finance deals.

Paying down debt, if possible, can significantly help your chances of getting approval for your car finance application.

6. Be realistic about what you can afford

You might be surprised to learn that one of the most common reasons for rejection is applying for finance for a vehicle that's too expensive.

This means you should apply for a vehicle that sits comfortably within your annual profits. Otherwise, lenders may look at your application and suspect you're overstretching your financial capabilities.

7. Don't make too many hard credit searches

The next thing to consider is the frequency of your credit applications. If you make multiple hard-search applications in a short period, lenders will see you as risky.

There are three ways to avoid this:

1. Space out your applications.
2. Use soft-search eligibility checkers to avoid hard searches. Hard searches appear on your credit file, so are visible to lenders.
3. Get a car finance broker to match you with lenders. This means the broker makes invisible soft searches on your behalf.
   
   

Working with a car finance broker has another benefit. Some lenders are especially happy to work with self-employed applicants. A good car finance broker could put you in touch with lenders who will be more favourable to your application.

Frequently asked questions

Zoomo is a leading provider of bad-credit car finance in Newcastle upon Tyne. If you're looking for a new set of wheels but are unsure whether you'll be approved for finance, we can help. Apply online using our soft-search eligibility checker and you'll find out today if you're likely to be approved.