How to Buy a Car 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.


, - February 14, 2019

If you’re self-employed and not a regular W-2 employee, how do you get a car loan? As long as you meet the minimum income requirements, it doesn’t matter how you make your money – you just need to be able to prove your income to the lender.

Car Buying Options when Self-Employed

Where can you get financing if you’re self-employed or an independent contractor and have bad credit? You have two main options: a subprime lender or a buy here pay here (BHPH) dealership. A subprime lender should be the first place you apply. When you take out a subprime auto loan, you get to finance a vehicle and build your credit score. These lenders specialize in dealing with consumers with less than perfect credit, but they still check your score during the loan approval process.

If you’ve been turned down by a subprime lender, or need a car fast, your next best bet is to visit a BHPH dealer. These dealerships don’t run credit checks and offer in-house financing, which means they don’t rely on any third-party lenders to complete the loan process. It’s easier to get approved for financing with a BHPH dealer, but be aware that because they typically don’t report on-time payments or loans, it isn’t going to improve your credit score. Plus, the vehicles on these lots are generally older models.

Providing Proof of Income

If you have good credit, you most likely don’t need to provide proof of income. If you have bad credit, however, you need to prove to the lender you’re able to afford your monthly payment. When you’re self-employed, you need to provide proof of income by bringing in copies of your most recent tax returns.

As for how much you need to make, most subprime lenders ask for a minimum of $1,500 to $2,000 a month net income after expenses as reported on Schedule C of the federal income tax form. These lenders also look at your debt to income (DTI) and payment to income (PTI) ratios. Ideally, your DTI should be no more than 45 to 50 percent of your net income, while your PTI should be no more than 15 to 20 percent of it.

To calculate your DTI, add up all your monthly bills, including estimated car and insurance payments, and divide it by your monthly net income. To calculate your PTI, take your estimated monthly car payment and divide it by your monthly net income.

If you want to dig deeper into what you could afford, check out our Car Loan Calculator, and play around with some numbers.

Ready to Finance a Car?

If you’re ready to buy a vehicle, but worry your credit is holding you back, let CarsDirect help. We work with a nationwide network of special finance dealers that can help people get the bad credit auto loans they need. Start the process of getting connected with a local dealership by filling out our fast and easy car loan request form 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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