Bad Credit Car Loans for Self Employed Individuals

Get Car Financing
Even with poor credit.

By

Contributing Writer

Amy Fortune is a contributing writer for CarsDirect and lead writer/editor for AutoCreditExpress. She also contributes regularly to several other high-traffic blogs. Amy was born in North Carolina and grew up with an appreciation for NASCAR and everything automotive. Now based in the Motor City, she continues to be happily immersed in car culture and automotive finance.


, Contributing Writer - November 22, 2016

If you work for yourself and have good credit, it should be relatively easy for you to get approved for an auto loan. When a lender sees that an applicant has a stellar credit score, the source of the buyer's income doesn't really matter. However, if there are issues with your credit, it will be more challenging to obtain vehicle financing.

Luckily, bad credit car loans for self employed individuals are available. And you can be approved for financing as long as you find the right kind of dealer and have the necessary documentation.

The Importance of Verifying Your Income

The easiest way for any buyer with bad credit to get approved for a car loan is to go through a dealer that has connections with special finance lenders. These types of lenders are able to look at factors beyond an applicant's credit score in order to approve them for financing.

Of course, special finance lenders still have certain requirements that must be met. For example, applicants must prove that they earn a qualifying income. The minimum income requirement for most of these lenders is $1,500-$1,800 (pre-tax) per month.

Normally, an applicant who has an employer and a steady job will just need to produce their most recent paycheck stub. But a self employed individual will have to verify their income in a different way:

  • Tax Returns: If you own your own business, work as a free-lancer or are otherwise self employed, there are several reasons why you would want to have quick access to your tax returns. If these records are organized and within easy reach, getting audited by the IRS should be less of an ordeal. Also, when applying for a bad credit car loan, lenders will need to verify that you have steadily been reporting a qualifying income.
  • Deductions: There are a lot of tax deductions available to consumers who are self-employed. In fact, most business-related expenses can be considered non-taxable for qualifying individuals. But if you're planning to finance a vehicle in the near future, you'll want to be mindful of these deductions. This is because special finance lenders will only accept your net income (after deductions) as qualifying income. So, even if you've technically earned enough money to be approved, if you’ve claimed too many deductions, your car loan application may be denied.

If it looks like you can prove that you meet the minimum income requirement through your tax records, the next thing that you should consider is your debt to income (DTI) ratio. This term refers to the percentage of your income that goes toward your bills every month. Typically, lenders won't approve an applicant with a DTI ratio that tops 50%. This includes the projected monthly payments associated with the bad credit car loan.

Other Necessary Documents for Bad Credit Car Loan Approval

As a self employed individual seeking auto loan approval with bad credit, your tax records will be crucial to your success. You will also need to show the following:

  • Valid Driver's License
  • Proof of Residence (Utility Bill Addressed to You)
  • Complete Landlord Information or a Copy of Your Most Recent Mortgage Statement
  • Copy of Your Most Recent Phone Bill (Cell Phone Provider Must be Major Carrier)
  • List of Personal References (Minimum of Six, Usually)

Of course, not all special finance lenders are exactly the same. Some requirements may vary. However, it's good to have a general idea of what documents might be expected of you before starting the application process. This way, you'll be as prepared as possible and have a better chance of getting approved.

Easier Car Buying for Consumers in Unique Situations

If you have bad credit, no matter what your situation looks like, at CarsDirect, we'll do everything we can to help you get approved for the car you need. In fact, we’ve partnered with a nationwide network of dealers that are willing and able to give you a fair chance at auto loan approval.

We've been assisting car buyers with credit issues since 1998, and we're ready to show you what we can do for you next. Our 1-Step Auto Loan Application will only take one minute of your time to complete and comes with no cost or obligation. So, go ahead and get started today.

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, Contributing Writer

Amy Fortune is a contributing writer for CarsDirect and lead writer/editor for AutoCreditExpress. She also contributes regularly to several other high-traffic blogs. Amy was born in North Carolina and grew up with an appreciation for NASCAR and everything automotive. Now based in the Motor City, she continues to be happily immersed in car culture and automotive finance.


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