Getting a Car Loan while Self-Employed

Get Car Financing
Even with poor credit.

By

Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


, - May 20, 2019

If you have good credit, you may not need to provide proof of income to qualify for auto financing. If you have bad credit, however, subprime lenders require you to bring in proof of income. If you’re a regular employee, you just need a recent computer-generated pay stub. If you’re self-employed, you may find that not all subprime lenders will work with you, and those that do typically ask you to furnish one or more recent tax returns as well as bank statements to prove your income.

Proving Income while Self-Employed

Regular employees pay taxes with each paycheck and receive a W-2 form for each tax year. When you’re not a regular employee, the IRS requires you to pay taxes on a quarterly basis. Independent contractors who get income from one or more sources get a 1099 form for each employer, and those who own their own business don’t receive any type of tax form.

In order to prove your income for a car loan while self-employed to those subprime lenders who accept this type of employment, you typically need to bring in two to three years of tax returns. Schedule C reports your annual income, and lenders use your net income after business deductions as your gross (pre-tax) income.

Depending on the lender, they may even ask to see recent bank statements to prove the income listed on your credit application.

Using Fixed Income to Buy a Car

If you don’t earn a regular income, and rely on fixed income like social security or disability, it’s not impossible to qualify for a bad credit auto loan, but it isn’t going to be easy.

Subprime lenders have a minimum income requirement, and although this amount varies, most ask that you make at least $1,500 to $2,000 a month before taxes. On top of that, they want to make sure that at least part of your income is garnishable. SSI and SSD are tax-free, and don’t meet the garnishment requirement.

For social security income, you need to provide proof of income by showing your award letter, but this isn’t a guarantee you’re going to get approved. If you do meet the minimum income requirement, but it isn’t garnishable, adding a cosigner with earned income reported on a W-2 could help you get approved.

Need Help Finding a Lender?

The bottom line is this: as long as your income is earned and meets the lender’s minimum amount required, you shouldn’t have an issue qualifying for the income requirement. With bad credit car buying, having a cosigner or co-borrower should be in the back of your mind as an option to consider, especially if you’re unsure about your income situation.

If you’re ready to take the next step and get the financing you need, we’re here to assist. At CarsDirect, we help credit-challenged car buyers find financing by connecting them to local dealers. Fill out our free auto loan request form to get started today!

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


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