How to finance a car loan when you’re self-employed

Purchasing a new car isn’t something everyone manages outright. Throw self-employment into the mix, and the challenge can be harder.

Variable income and unpredictability often make securing finance feel out of reach. But that’s not the case. If you’re self-employed or an owner of a micro-business, there are options to secure a car loan that doesn’t break your bank.

Now with times more uncertain than before, it pays to invest and choose wisely. Here’s how you can increase your chances of successful car financing. 

Prioritise loan type

One of the most common financing mistakes is falling in love with the car before the loan.

You wouldn’t buy a house without sorting the paperwork, and your vehicle buying strategy should follow the same rule.

If you want to save money, seek pre-approval first and understand how different types of car loans work. This helps you budget, compare and approach the right lender for your needs and is the smartest way to determine what you can afford. Apply this strategy whether you’re shopping new, used or private.

Make sure you:

●  Review interest rates, fees, charges and repayment frequency to work costs into your budget

●  Prioritise your credit score to confirm your current financial position

●  Shop for car financing before you visit car dealerships

Tip:  Be careful not to apply for too many loans in a short period of time as this impacts your credit report and may decrease chances of approval. 

Research, compare and negotiate

Will you be leasing or buying your car?

The type of loan you choose depends on your business needs. Consider the purpose of your car, budget and whether you need to keep its ownership. Research and compare at least three loans from various lenders before you decide.

If buying outright isn’t for you, leasing enables you to get a new car with low monthly repayments. But it still pays to do your research first to compare and strengthen negotiating power.

Pre-approval of car finance also improves your negotiating influence.

Consider potential tax benefits

Buying a vehicle for business is a great tax advantage.

You may claim your car against business tax with a registered ABN. Generally, leasing means you won’t pay GST.

If you’re GST registered, the tax is charged on the purchase price which you can claim back when you lodge your statements. Depending on the type of car you’re after, see if you’re eligible for the Australian Government’s instant asset write-off. This only applies to new and second-hand cars under $20,000.

Minimise lender risk

There are a few ways to minimise the lender’s risk, which could improve your chances of approval.

1. Have a substantial deposit
2. Get your credit score up to scratch
3. Keep balance sheet to prove business growth, profit and equity 

Weigh up features and restrictions

Every contract will have its own set of benefits and loan restrictions.

Before you sign, review the fine print. Sometimes, there are features to fuel savings like additional warranties and Guaranteed Auto Protection (GAP) insurance. Optional extras such as maintenance plans, GPS navigation and car alarm installation may sound good, but verify they’re meeting your needs and not adding to the total costs unnecessarily.

If there’s a chance you’ll pay your loan out early, look for flexible payment options and smaller payout fees like a chattel mortgage. These are favourable for self-employed individuals or tradies.

Buyer Beware: Not all features are what they seem. For example; some extended warranties are only valid if you return to the same dealership for servicing, which could end up costing you more. Remember it’s a car salesman’s job to upsell features, so it’s important to know what you’re really getting and if it’s worth your money.

Partner with a financial advisor

Partnering with an accountant or financial advisor is a wise move to determine all options and tax benefits.

Whilst it’s always vital to do your own research, a financial advisor provides knowledgeable guidance, so you find the best loan, lender and deal for your industry. These professionals have access to a network of financiers to save you the hassle of negotiating with each. Such savings in time and energy are valuable when you’re self-employed or a small business owner.

Flexibility, simplicity and clarity are the essential ingredients for anyone who is self-employed and looking to apply for car finance. The right loan will assist in the growth of your business, by ensuring access to the transportation you need.