Navigating Self-Employed Car Loan Options

Self-employed and need to finance a new vehicle for your business? Self-employed car loans can be made difficult if you don’t have the documentation required by traditional lending institutions.  Anyone applying for a loan today will be asked to submit a substantial amount of paperwork. However, you may find that you are behind on your tax returns. Or it may be that you are unwilling to provide a full financial history to a lender.

Self-employed car loan options

In this article we’ll take a closer look at self-employed car loan options. We also discuss some of the more commonly asked business car finance questions. Self-employed car loans can be divided into four categories.

1. Low doc business car loan
2. No doc business car loan
3. Consumer car loan
4. Full doc business car loan

1: Low doc business car loan

With a low doc car loan you’ll be asked to provide some basic financial information. You will need to prove that sales or revenue are recorded in your company books. This can be as simple as providing a recent BAS, a profit and loss statement or 3-months bank statements.

2: No doc business car loan

With a no doc car loan you will not be required to provide any proof of income or financial documentation. However, you will be asked for indicative gross turnover and net profit figures. You will also be required to complete a declaration. This declaration states that, as the ABN holder, you will be able to meet the required car loan repayments.

How to qualify for a no doc loan

To be accepted for a no doc car loan you need the following:

• ABN;
• GST registered;
• Asset backed i.e. home mortgage; and
• Good credit history.

The lender needs to know that you have been self-employed for a number of years.  They will prove this by looking at the age of your ABN and also determine if you are GST registered. Your credit file will be examined to confirm you have been meeting all repayment commitments. If you have been paying off a mortgage, your lender will see that you have been building equity. This information assures the lender that the income you’re earning is sufficient to meet all financial responsibilities.  This means your self-employed car loan can be approved without the requirement for you to provide proof of financials.

If I want to apply for a no doc or low doc loan, how old does my ABN need to be?

There’s no one-size-fits-all answer to this question because every lender has different lending criteria. There are mainstream lenders out there who will approve no doc and low doc car loans on a basic vehicle for a business that’s 1-year GST registered and 1-year ABN.

3: Consumer car loan

Also known as a ‘secured’ car loan. A consumer car loan is designed for purchasing a vehicle when the vehicle is not for business use. Therefore, you should apply for a consumer car loan if the vehicle is only intended for personal use. This car loan option requires that you provide full financials. This is usually in the form of a personal tax return.

4: Full doc business car loan

Also known as a ‘chattel mortgage’. A full doc business car loan will require full financials. These would typically include a tax return from the previous year and a balance sheet or profit and loss statement.

What financials are required for a full doc business loan?

Let’s say you’re not registered for GST, you’re not asset-backed, and your business is only 2-years old. In this scenario, the lender will most likely ask for full financial documentation. The documentation requested is to give the lender a clear view of your ability to repay your car loan.

What might this include?

• A copy of last year’s tax return.
• You may be asked for interim financials. This will depend on how far through the financial year we are when you apply for a car loan.
• Profit and Loss Statement
• Balance Sheet
• You may also be asked to supply bank statements and a copy of your last BAS.

Do interest rates differ between self-employed car loan options?

In our experience, many of the mainstream lenders have little or no difference in interest rates between car loan options. The difference in interest rates is determined by the asset to be financed and your individual profile. You may not be aware that lenders profile or scale customers, as per the following examples –

• A 3-years GST registered and a 5-year ABN holder, may be categorized as tier ‘A’.
• Whereas if your only 2-years GST registered but a 3-year ABN holder, you may be categorized as tier ‘B’.
• However, if you’re only 1-year ABN and you’re not asset-backed, you would probably be categorized as tier ‘C’.

Each of the above 3 tiers will have different applicable interest rates. This means the interest rate charged on your car loan will reflect your risk profile.

Does the vehicle have to be used for business?

‘Predominantly’ is the key word used when ascertaining if an asset is eligible to qualify as ‘business use’. In this instance, the word ‘predominately’ is defined as more than 50% business-related use.

You will be required to sign a loan contract when you apply for a business car loan. Part of this contract is a ‘Business Use Declaration’. The statement you sign will declare that the vehicle being financed will primarily be used for business purposes. With this being the case, the vehicle can be financed under your business name or your ABN. Now you can claim interest repayments on the loan and the GST component of the purchase price.

However, the vehicle will be deemed a ‘consumer car’ if it’s used less than 50% for business-related purposes. In this case, you will need to use pay-slips or tax returns to apply for a consumer car loan.

Will I have to pay a deposit?

Whether you’re asked to pay a deposit or not will depend on your profile. If you’re asset-backed then you typically won’t be asked to pay a deposit. However, you may be asked for a deposit if you’re renting. The amount of deposit will depend entirely on the lender but should be somewhere between 10% and 30% of the purchase price.

Selecting the best car loan option

Choosing the best car loan option for your specific circumstances can be a little daunting. As you can see from above, there are a large number of variables in determining what the best option might be for you. We strongly suggest you contact an experienced finance broker; one who has access to a wide range of lenders. This is the only way of ensuring that you achieve favourable loan terms and a competitive interest rate.

AAA Finance – the self-employed car finance experts

If you’re looking for a qualified finance broker with a great reputation and many years’ experience, you can’t go wrong choosing AAA Finance. We have access to more than 40 different consumer and commercial lenders. For business owners and those who are self employed, car loans are not out of the question. You simply need AAA Finance to help you navigate the lenders’ rules and regulations.

AAA Finance will assess your individual profile and look at many different factors. These include your GST status, your ABN, other debts, and the type and age of asset you wish to purchase. With this information, we can then decide which lenders might suit your specific circumstances. We then narrow it down to the lender that will offer you the most competitive interest rate and most suitable loan terms.  We also negotiate directly with lenders on your behalf to ensure you get the very best deal.

Please contact AAA Finance today. We’re at your service and would love to help you achieve the best possible deal.