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Car Loan Eligibility For The Self-Employed: Will I Qualify?

People who are self-employed are often concerned that they won’t be eligible for a car loan or won’t get the amount they need. This isn’t necessarily true. Car loan eligibility for the self-employed is not as daunting as it may seem.

If you’re self-employed, it may require a little more planning on your part to give you the best chance, but it’s still possible to get the car finance you want.

What’s the best way to finance a car if you’re self employed?

When you’re self-employed, it can be even more important to have access to a vehicle. 

And if you don’t have money readily available to buy a car outright, car finance is a good solution. 

There are several ways you can finance a car, but the best way for you will depend on a range of factors – the price and age of the car, the loan term, whether you have a deposit, and your financial circumstances.

If you’re looking for a car to own once the finance deal is done, then hire purchase might be your best bet. 

Personal contract purchase (PCP) is a good option for those looking for lower monthly payments, and you’ll have some options of what to do at the end of the deal – including owning the vehicle or swapping it for another.

Depending on what you’re going to use the car for, leasing is a popular option for those who are self-employed. 

Not only is it an affordable option, it can reduce your initial costs and help your cash flow. 

And depending on the status of you or your business, lease payments can often be classed as a business expense for tax purposes, reducing the net cost of your lease.

How to prove your income for car finance

The most important factor for lenders when deciding whether to approve your application for car finance is whether you have the ability to pay them back or not.

Which is when being self-employed can make things more difficult.

Your employment status can be trickier for lenders to gauge if you’re self-employed, perhaps working with several clients or on different jobs. 

And if you’re bringing in various amounts of income from different sources, it looks less stable than being with one employer who pays you a set wage.

So, if your income fluctuates throughout the year, it could be considered slightly risky for lenders. 

How to prove your income for car finance differs depending on the type of self-employment you are.

Sole traders

Many self-employed people, small businesses and freelancers aren’t registered as companies and operate instead as sole traders. 

In this case, the lender will still want to see how much you earn per month and are likely to want to see evidence of your ‘discretionary income’ which is what is left when you subtract your non-discretionary (unavoidable outgoings like gas and electricity bills or rent/mortgage payments) from your income.

For this reason, it’s important to be able to show regular income over a period of at least the last three months. 

The lender is likely to take an average per month over this period, but are more inclined to grant credit if your income is regular rather than sporadic.

Hippo Motor Finance will not recommend that you take out car finance if you can’t afford it. 

But we also realise that income can be seasonal in nature, so it’s a good idea to check your past earnings for seasonality trends and factor this in when you apply for finance.

Applying as a business

Some lenders won’t even consider a new business until it has a firm, established track record. 

If you have a Companies House registered company, then they’ll want to see your accounts and the income that the company has made (in many cases over the last three years, although one year of trading will work for some) before granting credit to a business.

Other lenders will be more interested in your income, how regular it is and the amount you have earned over the last three to six months. 

Some will want to understand how your business is structured, for example, how many directors there are.

Of course, if you’re looking to get finance through a business application, the lender will also want to check if you have a credit history (with other lenders) and if you’ve any adverse credit incidents like County Court Judgements (CCJs). 

They’ll often want to see detailed accounts and be able to judge income versus expenditure before granting credit, particularly if a company has been trading for less than three years.

So it’s key that you have clean accounts and are able to demonstrate a track history of income and expenditure that would allow the business to qualify for a car finance loan. 

Thinking ahead and ensuring that you can demonstrate a solid trading history and clean accounts will make all the difference.

What to do if you’re struggling to show proof of income?

Your income is one factor of the eligibility criteria. The other is mainly your credit history, so spend some time working on that to improve your score. 

Saving up for a deposit and considering a guarantor loan are other options that could help, as both lower the risk for the lender.

Employment and address history

As lenders are always looking for evidence of stability when it comes to gauging risk, the longer you’ve been self-employed and at your current address, the better it’ll look.

You’ll either be asked or it’ll be through a credit check, but for your best chances of success, the lender will want to see at least three year’s employment history, address history and confirm that you’ve been a UK resident for a minimum of five years. 

Improving your credit score

Being approved for car finance is all about maximising your chances, and that usually starts with your credit score. 

If you have a low score, it could possibly stop your application from being accepted.

So your first step is to log on to the three main credit reference agencies – Experian, Equifax and TransUnion – to check your history and your scores. 

Make sure all the information listed is correct, and if not, take steps to remedy it.

If your score is low, there are many ways you can improve it. 

Ensure you’re registered on the electoral roll, spring clean your finances by paying down your debt, and terminate any accounts where you’re linked financially to someone who has bad credit.

Keep paying your bills and debt back on time, and regularly and you should see your score start to rise.

Do I need a deposit?

A deposit isn’t always needed for many types of car finance, but if you’re self-employed, putting down a deposit can help your chances of being accepted. 

Not only does it mean you’ll have a smaller loan to pay off (the bigger the deposit the less you’ll have to borrow), but for the lender, it’ll also reduce the risk, as they’re now being asked to lend you less money.

Can I use a guarantor?

If you’re struggling to get an application for car finance approved, one other option is to take out a guarantor loan. 

Having a guarantor lowers the risk for the lender, as your guarantor is saying they’ll pay if, for any reason, you miss a payment. 

Usually a friend or family member, it’s important that your guarantor has a good credit rating. 

It’s also worth knowing that if you miss a payment on your car finance, your guarantor’s credit score will also be affected. 

Check your chances first

If you want to find out whether you’ll be accepted for car finance before officially applying, it’s best to use a soft search, as this won’t harm your credit score. 

Hippo Motor Finance only ever uses this type of search in the first instance and because we have such a big panel of lenders, we can help with all types of financial and employment circumstances. 

Use our free eligibility checker below to find out if you’ll be approved today.

Representative Example of Credit

We expect more than 51% of our customers to achieve this rate.

Loan Amount Total Cost of Credit Representative APR 60 Monthly Payments Deposit Amount Loan Term Total Amount Payable
£7,500 £3831 19.1% APR £188.85 £0 60 Months £11,331

All offers are subject to change at any time, you must be 18 or over and finance is subject to status, vehicle availability and terms and conditions apply. We can introduce you to a limited number of finance companies, a commission may be received. Failure to maintain payments may result in termination of your agreement and the vehicle being returned, this could affect your credit rating and make it more difficult to obtain credit in the future. All prices correct at time of publication.

We purchase a wide variety of vehicles from all over the country to ensure the best quality and value for our customers, all of our cars go through a thorough inspection process and if they do not meet our standards we do not sell them. We endeavour to inform our customers (where possible) the provenance of the vehicle they are buying and as such we will always inform you if the vehicle has previously been either an ex fleet or hire car. Should your vehicle be an ex hire/fleet car please do not be concerned as we would never value this vehicle differently when you come to part exchange it and there is no difference to the CAP valuation either.

You should try and estimate the distance you will travel as accurately as possible to try and avoid excess mileage charges at the end of your contract.

All pictures and/or photos and car descriptions on this site are for illustration and reference purposes only and are not necessarily the vehicle on offer. All offers are subject to change at any time and are subject to finance approval and vehicle availability. All prices correct at time of publication. E & OE.

Hippo Vehicle Solutions t/a Hippo Motor Finance is authorised and regulated by the Financial Conduct Authority. FRN 658076. We are a Credit Broker not a Lender and can introduce you to a limited number of lenders. Subject to status and to UK residents only (excl. the Channel Islands). Individuals must be 18 or over. Guarantees and indemnities may be required. We typically receive a fixed commission calculated by reference to the vehicle model, product or amount you borrow, for introducing you to a lender but this does not affect the interest charged on the agreement, all of which are set by the lender. Images for illustrative purposes only. Hippo Vehicle Solutions t/a Hippo Motor Finance is an Appointed Representative of AutoProtect (MBI) Limited for insurance distribution purposes. AutoProtect (MBI) Limited is authorised and regulated by the Financial Conduct Authority. Its firm reference number is 312143. You can check this at www.fca.org.uk

We endeavour to ensure that all information including the specifications and finance availability are accurate. Whilst we make every effort to display correct information we are aware that errors may occur occasionally. We are not able, therefore, to guarantee the accuracy of all information especially when given to us by third parties. If you do require clarification of some information you have seen on our website, please email us at info@hippomotorgroup.com . This does not affect your statutory rights.

We are a broker not a lender and our registered office is Unit 26 Trident Park, Trident Way, Blackburn, BB13NU.