There is a growing number of Canadians who are self-employed. This trend was accelerated by the pandemic and shows no signs of slowing down. So, today we’re going to go over financing a car loan when self-employed.
A common issue that most self-employed consumers experience is the challenge of securing financing. That’s what our auto loans team is discussing today.
There is a misconception that a self-employed borrower presents more risk than someone who is working a traditional 9-5 job, but the pandemic has taught us that no job is truly “safe”.
Understanding Car Loan Providers
To maximize your chances of getting a really competitive car loan when self-employed in Ontario, you need to look at things from the perspective of a car loan provider.
These lenders use automated processes to streamline their operations. One of the ways the process is automated is by having software approve or reject your application based solely on your credit report.
The lender tells the credit reporting agency what credit score and profiles they are looking for and if an applicant doesn’t fall into those parameters, the application is rejected before a human looks at it.
This may seem like a cold-hearted way of doing things but imagine you are a lender getting hundreds of applications every day, your staff would be overwhelmed.
Since the credit report is the first thing the lender looks at, you should review your credit score to see whether you fall under the prime credit score classification. If your credit score is above 680, most lenders would classify you as a prime.
Documents Needed to Finance a Car Loan When Self-Employed
Lenders want to know whether your business is generating positive cash flow. Most businesses do not make it past the 2-year mark, so lenders will ask for your tax assessments for the last 2 years.
The problem is that most self-employed Canadians implement aggressive tax strategies that help them reduce the total amount of taxes they owe.
This is great when you want to reduce your tax liabilities, but it can make it hard for lenders to calculate how much money is available for the self-employed Ontario car loan.
A simple way to address that concern is to provide bank statements for the last couple of years, if your income is substantial and stable, then you should be able to qualify for the loan.
Proving Your Income
The biggest challenge that Canadians face when trying to get a self-employed car loan is meeting the lender’s proof of income requirements.
Lenders primarily focus on employed borrowers who have very simple income profiles. Salaried borrowers just need to provide their latest pay slip and the lender is able to calculate your maximum loan.
Borrowers who are self-employed will usually have a more complex financial situation. Lenders will want to see your bank statements for the last year and income tax assessments for the previous 2 years.
This documentation requirement may seem like a pain in the neck but it is necessary to finance a car loan when self employed as most lenders have tightened their loan underwriting guidelines to avoid taking on bad debts.
Working With a Competent Professional
You do not have to take on these challenges alone, there is help available at no cost to you. Reach out to your local car dealership and discuss your needs with them.
The dealership will be able to look at your credit profile and if your score is under 680, show you how to address the credit issues so you can get a prime interest rate car loan.
Another substantial benefit of working with the dealership is they can negotiate the lowest possible interest rate for you. These dealerships have access to “wholesale” interest rates that the average consumer would never be able to access.
Now that you know how to get a car loan when you are self-employed in Ontario, you should meet up with your local dealership ASAP, there is a shortage of new and used cars that is making it hard to find a great car at a low price.
If you’re ready for a car loan, we’d love to help! simply click here to get pre-approved online today.