Unfortunately, for business owners, obtaining finance is not always easy. Depending on the status of your business, many potential lenders may see you as a liability or risk simply because ongoing work can’t be guaranteed. Even if you are able to provide a history of earnings, self-employed borrowers are classified in a different category to PAYG borrowers.
If you have been declined by a bank for a car loan, a low doc loan may be a solution.
When it comes to general car loans, the qualification criteria is strict compared to many other types of asset finance – however, the upside is a lower cost loan. With low doc car loans, there is greater flexibility in the approval process. The drawback is however, a higher interest rate in order to lessen the ‘risk’ involved with lending you money.
If you are self-employed or have an irregular income such as seasonal work, freelancer, consultant or contractor, a low doc loan is a genuine option for funding. If you rely on your car or use it for your business, this could be the best (or only) choice for you.
There are a number of factors to consider when reviewing lenders. In general, you should keep the following points in mind when researching:
Non-Bank Lender – There are numerous non-bank lenders throughout the country, credit unions and building societies. Most provide competitive rates on secure and unsecure car loans for business owners.
Car Loan Brokers – A broker is a great way to quickly identify what loans are available to you based on your circumstances. They have relationships with multiple lenders and can even negotiated on your behalf.
Specialist Lenders – There are a number of online car loan lenders. Many provide low rates and flexible approval criteria. Speed of application and approval is a main benefit of these loans.
Chattel Mortgage – This is an option where the financier loans the money to the borrower to purchase the vehicle, where the lender will take charge (mortgage) over that car. The car is then invoiced to the borrower allowing them full ownership from purchase.
Co-signer – If you have a person willing to co-sign on a loan for you, this can allow for a better rate and terms. A good way to organise finance with a co-signer is to create a lease agreement with them. This can help alleviate the risk on their end.
It’s important to always review the terms and conditions carefully and ask for any verbal promises to be put in writing if they are not in the contract. Other considerations include checking their actual business licencing, online business reviews/complaints.
Just because a lender says you qualify for a certain amount, doesn’t mean you can afford that amount. Be sure to do your own calculations and consider all running costs of the vehicle. Items such as:
Depending on your lender, you will be able to quickly apply online or at their business location. As a basic rule of thumb however, you must provide the following things:
In certain situations self-employed borrowers are limited to their loan options in the beginning, especially if you’re a newer business. The longer you are in business or the more money you have to put down, the better you terms will be. Depending on the length of your contract, you can look to refinance your car loan as you proof your credit worthiness and further establish your business.
If you have an established business, try speaking to a bank or car loan provider first to see if you would qualify for a mainstream car loan. Self-employed doesn’t mean that a low doc loan is the only option.
This is completely dependent upon the individual borrower and their circumstances. Those with good credit, a large down payment and strong business history would qualify for a better rate than a borrower with the opposite.
Many lenders will consider bad credit, especially if the other elements of your application are strong (business financials, down payment, etc.).