Guide to Self-Employed Car Finance

Car loans for self-employed individuals

When you are self-employed you do not necessarily get a regular weekly income.  In addition, there can be no corresponding weekly payslip that can prove your income to lenders.  You may also be a bit behind on your tax returns and find it difficult to provide documentation to prove your income.  So how do you get self-employed car finance? 

There are several car loan options available to those who are self-employed.  The best option to suit you will depend on how you will use the car, either business or personal use, the types of documentation you have available and what lenders you have access to.  Using an experience finance broker can ensure you get the best deal to suit your individual circumstances whilst also protecting your credit rating.  AAA Finance has access to over 40 different lenders.  Our experience finance brokers will save you time and money by finding the right lender for you!

Self-employed car finance options

There are two main types of self-employed car finance options depending on if the car is to be used for business related use or personal use.  If the car is too be used for greater than 50% business related activities then the easiest and most cost-effective option is a chattel mortgage or business car finance.  If the car is for personal use than a secured consumer car loan will be your best option.

Business car loans

A chattel mortgage is a business car loan that uses the car as security for the loan.  The chattel is the car being financed and the mortgage refers to the loan and the regular repayments required to pay off this loan.  To be eligible for business car finance you needed to have an active ABN and be able to justify 50% business related car use. There are 3 types of business car loans.

1. No Doc Car Loan

2. Low Doc Car Loan

3. Full Doc Car Loan

Basically, these options differ in the type and amount of paperwork required by the lender.  Each lender has different qualifying criteria for each type of car loan.  For example, to qualify for a no doc car loan, most lenders will want your ABN to be running for a minimum of 24 months and for you to be asset backed, that is to own property or to have a property mortgage.  If you are not asset backed, then lenders may want a deposit of up to 20% of the vehicle purchase price.

A low doc car loan is the most popular type of business car loan.  As the name suggests, a limited amount of paperwork is required to prove income.  Lenders require some proof of income which may be in the form of either bank statements, a business activity statement and/or an accountant’s letter.  Each lender differs in their documentation and qualifying requirements.  With a low doc car loan, lenders will consider ABN holders after just 6 months of trading in their business.  In this circumstance, you will need to provide 6 months bank statements to show that revenue is passing through your business bank account.

Advantages of business car loans

Business car finance has several advantages.  Firstly, if you are GST registered you can claim the GST portion of the vehicle purchase price in your next BAS.  Secondly, the interest charged on the car loan is tax deductible.  Business car finance also attract extremely competitive interest rates.  Additionally, the ATO has extended the Instant Asset Write Off until June 2022.  It has been renamed ‘Temporary Full Expensing’ and allows business owners to immediately deduct the business portion of the cost of eligible depreciating assets.  This includes cars!   Other tax breaks may apply depending on you circumstances. As always speak with your accountant. 

Consumer secured car loan

If you are not intending to use the vehicle for business related use than you will have to utilise a consumer secured car loan option.  Proof of income will be required.  Documentation may include bank statements, BAS, tax return and notice of assessment and/or profit and loss statements.

How do I choose the right self-employed finance loan option?

Navigating through your self-employed car finance options and choosing the right lender can be over whelming and time consuming.  Often you end up with a less than satisfactory outcome and you may also end up negatively affecting your credit rating in the process.  A car dealer will have only 1 or maybe 2 lenders to choose from.  They will try and fit a square peg in a round hole and may do more harm than good.  However, an experienced and reputable finance broker like AAA Finance has a large array of lenders to choose from and we are experts in our field.  We will save you time and money, protect your credit rating and get you the best deal available. Call 07 5493 1222 to speak with one of our friendly finance experts.