Can I get a car loan if I am self-employed?

Self-employed individuals often don’t earn a standard wage like a permanent employee would. So, what does this mean when it comes to getting approved for a car loan?

Most lenders require borrowers to submit certain documents with their car loan application to prove they will be able to service the loan. This typically includes payslips that show consistent, stable earnings and long-term employment.

If you’re self-employed, it’s unlikely that you’ll have payslips, or even earn a regular income. Which can make applying for car finance a little more difficult.

But as long as you are able to afford the repayments on the loan amount you’re looking to borrow, there are options available that may enable you to secure a car loan.

Low doc car loans

Some lenders offer low doc car loans to those who may not have all of the standard documentation that’s generally required for a car loan application, such as self-employed individuals.

In place of pay slips, lenders may accept other documents that support a borrower’s ability to repay the loan. This could be a letter from your accountant, Business Activity Statements (BAS), and/or other forms of proof of business income.

While low doc car loans can make it easier for those who work for themselves to apply for finance, they are a greater risk to the lender, meaning they will typically have higher interest rates attached.

It’s also worth noting that lenders may be more willing to approve a self-employed borrower for a secured car loan than an unsecured car loan. A secured car loan requires the borrower to provide an asset as collateral on the loan – typically the car itself. This reduces the risk for the lender as they may be able to sell the asset to recoup money lost in the case of a default.

A good credit score will generally also work in your favour when it comes to securing a low doc car loan. A strong credit history can provide reassurance to the lender by showing that the borrower exhibits positive credit behaviours and has a good reputation for paying down debt regardless of their employment status.

Chattel mortgage car loans

Self-employed borrowers who require a vehicle for business purposes might consider a chattel mortgage. A chattel mortgage is a type of car finance specifically for business owners. It covers the cost of vehicles that are used for the business at least 50 per cent of the time.

Chattel mortgages are only available to businesses that can prove the vehicle is for business use, and reports to the Australian Taxation Office (ATO).

This kind of vehicle finance may allow you to claim various tax deductions not available to consumers. However, due to this, sole traders and business owners are not protected by the National Consumer Credit Protection Act (NCCP) as a consumer would be.

Another alternative to a chattel mortgage that might be worth looking into is a commercial hire purchase. Though, this isn’t technically a car loan, as the lender retains ownership of the vehicle until the loan and any interest charges have been paid off in full.

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