Nothing can be better than being self-employed; after all, you are not at the beck and call of anybody. You probably do your business with a bit more passion and dedication. The only drawback of being self-employed is that you cannot count on monthly revenues. The instability in cash flow leads you to create earmarked cash reservoirs to help you keep the ball rolling when an opportunity comes your way, and you are in a tight spot. There is nothing to worry about any purchase as long as you have to pay for it outright, but what if you are to borrow money?

A car, whether it is for a business purpose or for personal use, may require you to borrow money, not because you do not have the cash to pay in full one swoop, but because a large chunk of money would blow your budget and make it harder for you to hit the ground running. However, getting your car financed as a self-employed is not as easy as falling off a log.

Why is it challenging for a self-employed to get car finance?

Your unstable income is one of the reasons why a lender would not be able to trust your repaying capacity. When you have set wages, your lender can know with the help of a pay slip about your monthly earnings. After reviewing your monthly expenses in the past six months, they can quickly evaluate whether there is a scope in repayments of monthly instalments.

Well, the lending industry has evolved greatly. The chances for self-employed car finance in Ireland are up. Now, lenders do not just emphasize a fixed flow of cash; they take into account the whole picture of your finances.

Ways to get self-employed car loans

Here are some suggestions to help you improve your chances of qualifying for self-employed car finance at competitive interest rates:

• Keep your credit score up to snuff

Your credit report will serve as the basis for a lender to decide whether to sign off on your application or not and, if so, how much interest rates you should be charged. Not to mention, the poorer the credit score, the higher the interest rates will be.

So, before doing anything, the first thing to do is to check your credit file to ensure all your personal details, such as name, address, and contact information, are accurate. Make sure it does not consist of any unidentified accounts.

Identity theft is one of the reasons for a lower credit rating. It takes a bit of time to remove such errors from a credit file, so ensure you get hold of credit reference agencies a few months before applying for a car loan.

Bear in mind a three-digit credit score is not the be-all and the end-all. Even if it is in the Green, your lender will carefully examine how much debt you currently owe.

Is there any possibility that you fail to meet your obligation along with other debts? They gauge the risk involved in lending money to you by considering all financial aspects. Of course, the high default risk suggests higher interest rates. Use the following tricks to keep your credit health good:

• You should be free from other debts, including small emergency loans.
• Make sure you have paid off all your credit card bills. If not, keeping the balance lower than 30% is vital.
• No money should be borrowed in the last year before applying for a car loan.

Some lenders claim to provide you with no credit check loans in Ireland. They are prequalifying approval letters. Based on your financial information, they will let you know the estimated interest rates. It does not pull your credit points, but a hard check is made when you formally submit the application for a car loan.

• Set your finances straight

A lender would like to delve into your annual profits. Your chances of getting the nod from them are so high when your business has established a string of profitable years. It is considered a good sign if your profits do not drop below from a certain point even if there has been a record of ups and downs in your revenues.

You should keep your business expenses as low as possible. The more you cut back on unnecessary costs, the better. Have earmarked funds. It will help you win the trust of your lender. Keep your business expenses separate from your personal expenses; otherwise, it will be complicated to judge your repaying capacity. Try to figure out ways to retain cash as much as possible.

• Put down a larger deposit

There is no one-size-fits-all method to determine the risk. Every lender has their own way. Nobody knows how they calculate the risk involved in lending money to you. Of course, the higher associated risk will cost you a higher interest rate. In order to avoid being charged high interest rates, you should try to arrange a larger deposit.

An ideal deposit size is 10% of the car’s value. You should try to make it to double. A larger down payment will reduce the loan amount. Even so, there is no guarantee that you can qualify for lower interest rates.

However, it is not easy to put down a larger deposit. In this situation, you should consider an alternative: buying a secondhand car. A used car costs less than a new car, and therefore, the size of the loan will be lower even if you do not arrange a down payment of more than 10% of the sticker price.

When buying a used car, make sure you understand its condition. Some lenders charge high interest rates if the car’s condition is not so good. Do research before you start looking for a secondhand model. There is no point in buying a used car if you get a car loan at a relatively high interest rate.

• Submit a joint application

If you have difficulty getting approval for a car loan, you should consider a joint application. Apply for a car loan with your spouse or any other family member. Make sure that they have a good credit report and a stable income source. There is no point in applying for a joint application if they earn nothing, rely on a pension and are your business partner.

If a joint application is not an alternative, you should consider arranging a guarantor. With the help of a guarantor who has a good credit score, you can qualify for better interest rates. This is because your lender will call in on your guarantor to make payments in case you default. Bear in mind your guarantor will also lose their credit points if you make a default. It can strain your relationship with them.

The bottom line

Arranging a car loan for self-employed individuals does not have to be complicated. Arrange a larger deposit size. It may help you get a loan at a lower interest rate. Make sure you have all the documents to prove your repaying capacity. If you still struggle to qualify for a car loan, you can arrange a guarantor with a good credit history or submit a joint application.