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Getting a car loan when self-employed

Whether you are a self-employed individual or not, being able to buy a car is an exciting milestone that’s worth celebrating. Getting a car loan can be tricky for entrepreneurs just getting their businesses off the ground. However, getting a car loan as a self-employed individual can be easier with the correct information and financial support.

Financing a car loan when self-employed

Even though being a self-employed Canadian can come with challenges, it doesn’t stop you from achieving financial goals like buying your dream home or car. You can choose a traditional car deal or a financial institution to access financing to purchase a vehicle.   

Each lender has unique policies and advantages, so your choice will depend on your financial situation and the terms you are offered. It can help to consult a financial advisor as they can help break down the terms you are receiving and give you a clearer idea of which offer aligns best with your goals.

A woman signing the contract for her car

Three reasons self-employed people have a hard time getting car loans

In some instances, self-employed individuals may find it challenging to get approved for a car loan through traditional means. Of course, every situation is different, and several factors can influence whether their applications get approved. 

Banks have strict approval criteriaIf you are trying to secure a bank loan to purchase a car, you’ll likely need proof of stable income to increase your chances of getting approved. Unfortunately, self-employed individuals won’t always have a steady income because they don’t work traditional jobs with an annual salary, which is why getting approved in this case might be tricky. 

Debt-to-income ratioSelf-employed business owners often gain financing through small business loans to fund various business expenses. As such, if a self-employed business owner has multiple loan obligations, this can impact their debt-to-income ratio (DTI). 

Age of the businessApplying for a car loan as a self-employed individual can help if your business is established and has been running for several years instead of a company that just got off the ground. A healthy business history will give lenders more confidence in your ability to repay those car loans, increasing your chances of gaining approval. 

Three things to consider when getting a self-employed car loan 

  • Build your credit score- most banks and automobile dealerships will look at your credit score when you apply. A solid credit score, preferably above 660 points, can give you a better chance of getting approved.
     
  • Consider using the equity in your home- if you are a homeowner, using the untapped equity in your home to gain home equity financing can be a great solution. Not only are home equity loans more accessible to qualify for, but the funds earned are flexible in their use and can be used to fulfill various financial goals, including purchasing your dream car.
     
  • Find the right down payment amount- as a self-employed individual, the amount you put down for a down payment can impact approval. Most self-employed individuals don’t have a steady income stream through traditional employment, so to compensate for this, most self-employed Canadians would make a larger down payment than a standard applicant would.

 

Conclusion: home equity loans to buy a car 

Finally, being able to purchase your dream car is truly a feeling like no other and is one that all Canadians should have the chance to experience. Even though financial life in Canada can be challenging to navigate as a self-employed Canadian, it shouldn’t stop you from achieving your financial goals. By incorporating some of the strategies mentioned earlier and using all the resources available, purchasing the car of your dreams can be well within your reach.  

With Alpine Credits, self-employed homeowners can unlock their home equity to access financing for a car purchase. Unlike traditional financial institutions, your credit score, income statement, and employment status are not the main decision drivers in getting approval for a loan. You are eligible for a home equity loan if you have at least 25% home equity in your property.

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Frequently asked questions

Yes, you can receive financing to buy a car even if you are self-employed. The approval criteria for self-employed individuals differ from those of traditional applicants, so it’s best to investigate this before applying. 

This depends on the nature of your business. If your business requires you to travel regularly, it may be worth considering, but there may be better ideas if not.