What The Self-Employed Need To Know About Auto Loans
Getting a loan may seem more difficult for the self-employed, and it's true that you may be subject to more requirements. However, it's not impossible or even that onerous to apply compared to what the "regular" employed have to do. You just need to know how to approach the loan to give the right impression and then show that you can keep payments under control.
Be Clear About Running Your Own Business
A common pitfall that the self-employed face when trying to get a loan, approval for a mortgage, and so on is that the bank or lender will insist on talking to a supervisor and seeing pay stubs. This is frustrating for someone who is his or her own boss. But a lot of times the confusion lies in how the self-employed person presents him- or herself, which is usually that they do this or that work.
Whether you have a brick-and-mortar shop or are a freelancer who works wherever there is internet access, you technically run your own business. Many cities require you to have a business license no matter what, so present yourself as a business when you try to get an auto loan. If you start off as someone who owns a business, that immediately sets the tone for the application process — you don't have a "supervisor" because you are the supervisor.
Grab That Low-Minimum Option
If your income fluctuates, you need the option to pay a very small amount. However, those very small minimums often come with long repayment terms, which increase the amount of interest you pay over the life of the loan. When you calculate what you need for your auto loan, do this:
- Find the loan with the lowest possible minimum monthly payment
- Put down a reasonable down payment as long as it doesn't eat too much into your savings (in other words, don't blow your emergency savings on just the down payment — save some for yourself)
- Double or triple the payment size during good business times, with the instruction that extra money go toward the principal and not future payments
If you do those three things, you'll eat away at the loan and be able to cut back easily if times get lean again. This is something you could do even if you weren't self-employed, but it works very well for those with their own businesses because it shows the lender that you're serious about getting the loan paid off.
Auto loan lenders know that the number of independent contractors and freelancers has been growing, and the lenders are better equipped to handle contractor applications. Don't assume you'll have a tough time — you too can get an auto loan.