It's disheartening to face rejection after preparing for everything from finalising the best car to arranging the deposit. Most car finance providers require detailed proof of affordability for approval. Car finance is a long-term agreement. Lacking a regular income impacts the prospects of getting one. This is especially true for individuals working as freelancers or are self-employed.

This is because self-employed individuals lack a fixed monthly income. Instead, they earn on a project basis. Lenders consider this seasonal nature of the profession as risky. It is the reason self-employed struggle to qualify easily.

However, rejection is unimportant; knowing the reasons is important. It will help you avoid mistakes and improve your chances of qualifying for the loan.

Common reasons for car finance rejection for self-employed

There could be multiple reasons for car finance application rejection for a self-employed. Let’s analyse the same:

a) Poor credit history

Individuals working on a project base struggle to ensure a sound credit profile. It is because of the constant stationery and other official requirements. They struggle to pay off debts timely. A popular reason could be delayed client payments. Thus, pending debts impact the credit history and lead to loan rejection.

b) Inability to provide a large deposit

As mentioned above, self-employed struggle to save money with seasonal earnings. Thus, providing large deposits becomes nearly impossible. Lenders cannot decipher affordability without a decent credit history and sufficient deposits. It is the reason they reject the loan application.

c) Age restrictions

Usually, every car finance dealer has certain age restrictions or criteria to qualify a person. Individuals below 18 cannot apply for a car finance application. Alternatively, some provide car finance to only individuals above 21. Thus, one must check the age criteria. Applying as an underage requires a guarantor. If you do so without one, it leads to loan rejection.

Most individuals skip this critical information before applying for car finance. Thus, it leads to loan application rejection. Additionally, aspects like bankruptcy, Multiple CCJs, and insolvency status also impact the application status. However, do not worry. You can still improve your prospects of getting car finance for self-employed quotes.

5 Ways to Boost Possibilities for self-employed Car finance approval

Self-employed must work from scratch to improve the approval possibilities. You need to improve your credit score by paying off some debts. Moreover, ensure sufficient driving experience to get a permanent driving license. It reveals your expertise as a driver. There are other aspects to work on getting your favourite car on finance:

1) Try to improve income and affordability

Improving income is one of the most important aspects of car finance. You can do so by increasing the project count. However, it is challenging to get a client quickly after finalising one. Moreover, if you lack a team, wrapping up a project may take time. However, try to take short-term projects instead of long-term ones for a year. It will help you ensure a long operational history. Finding short-term projects is easier than the latter one. Moreover, it shares more scope to work on your car finance dream.

Consistency is the prime goal here. Self-employed with huge gaps or no work months struggle to qualify. Apart from this, knowing the income criteria will help you plan it better. Here are some documents that car finance providers ask you to provide:

3-6 months of bank statements
Company account details
Employment/operational history document from HMRC
3 years of self-assessment tax return filings

Having at least 3 years of operational history is the base to qualify for self-employed car finance. If you are just a beginner with a low operational history, revenue and no tax return, you may not get approval. Here, you may only get car finance with a guarantor’s support.

2) Check for guaranteed car finance quotes

Guaranteed car finance does not imply that you may qualify for the loan without requirements. It implies that you may get the guaranteed loan approval if you can reveal the existing potential to repay the loan in a timely manner. It is an income-based approval criterion. Hence, the facility is ideal for individuals with poor credit profiles.

Most self-employed people are confused regarding whether they can qualify for car finance based on this criterion. Additionally, they refrain from checking it due to fear of credit drop.

You can check your affordability by seeking guaranteed car finance with no credit check facility. It helps you understand your affordability and payment potential without a change in your credit history. Yes, it leaves no mark on your credit report, and other lenders cannot see it. The no-credit check facility may help you decide right. If you cannot afford the car you want after the check, identify used or low-price cars.

3) Get a guarantor on the loan

If you cannot wait until credit score improvement, a guarantor may help you qualify. Identify someone you share a bond with, like- father, mother, brother, sister or even husband/wife. The guarantor you choose must be in a better financial and credit position than yours. For example, he must have regular employment and a sound credit history.

He will be responsible for paying the dues if you cannot. Thus, choose someone who understands you and your situation well. Check whether the person can commit to a long-term agreement. It will help you benefit from the loan. Moreover, having a guarantor on the loan reduces your liabilities towards the loan. You can fetch a car finance quote at low interest rates and deposit requirements.

4) Increase your deposit amount

As mentioned in the first point, improving your project count may help you. Apart from helping you ensure consistency, it may help you save more towards deposits.

For example, if you have total projects worth £15000 compared to £9000 earlier, you can save £8000, rather than just £2500, towards the car finance deposit. The higher the deposit amount, the higher the chances of qualifying at low interest rates and terms. Moreover, your monthly repayments will decrease as well.

Identify whether you can make financial compromises for a year to rationalise your dream of affordable car finance. If yes, you can run your favourite car on the roads.

5) Improve your credit history/score

If a car finance provider has rejected you because of a low credit score, take steps to improve it. Analyse your credit report first to know the delinquencies. Here is how you can do so:

Check the paid debts and their status in the credit report,
contact the credit agency if the paid debt still appears on your credit report
Update your information on the electoral roll
Discuss affordable payment plan with your creditors
Restrict the use of credit cards
Have separate personal and business accounts
Make a debt repayment plan by prioritising costly debts

Business owners rely too much on credit cards for purchases. It may seem convenient, but it impacts your credit score. It harms it if you already have a low credit score. To counter it, limit using credit cards. Instead, seek affordable options like quick cash loans to finance short-term needs.

It helps you finance the need with transparent terms with same-day amount sanction. Moreover, the interest rates are far lower than what you witness with credit cards. It is a convenient way to tackle emergencies and small business needs.

Bottom line

Getting a car finance quote in a single attempt may seem challenging for a self-employed. However, it is not impossible. You can increase your chances of getting the same with affordable interest rates. Aspects like- credit score improvement, high deposit, and reliable backup like a guarantor may help you qualify. Wait until your finances and affordability improve. It will help you qualify without obstacles.