No matter whether you’re travelling the world as a digital nomad, creating content full time, or delivering takeaways in your spare time, self-employed car finance could be within your reach. Our car finance expert, Verity Hogan, explains more
Going out on your own
Whether you’ve always dreamed of forging your own career path or stumbled into self-employment by accident, more young people than ever are choosing to wave goodbye to the 9 to 5 and strike out on their own.
The statistics speak for themselves; according to the Office for National Statistics, one in ten 22- to 30-year-olds are self-employed after leaving education and one in five (21%) 16- to 21-year olds think it’s likely they’ll be self-employed at some point during their career.
Self-employment provides an opportunity to unlock a higher income, achieve a better work-life balance, and build a portfolio career. It is clearly becoming more popular for many reasons, even if it doesn’t offer the security of a full-time job.
So, what happens when you need car finance?
From Deliveroo drivers to digital nomads, having access to a reliable set of wheels could be essential to your work.
But it’s not always easy to get self-employed car finance, especially as a young driver. Going against the grain and creating a career on your own terms can come with a range of perks, but financial security isn’t always one of them – and that makes lenders nervous.
Don’t panic; it’s not all doom and gloom, we promise. There are ways you can access affordable self-employed car finance as a young driver – and we’re here to help.
Roadblocks to watch out for
Arguably the hardest part of securing self-employed car finance is proving your income.
When you work for yourself, your monthly income can be unpredictable. Take content creation as an example. Shoot a brand deal or have a video go viral, and your take-home pay could skyrocket for a short time before crashing back down to earth when you’re shadow-banned in a content slump.
The same ups and downs can impact couriers. Pick up a shift on a Saturday night and you could end up with more orders on your plate than you could possibly manage. On the other hand, try to earn some extra cash on a slow Wednesday and you might end up spending more on petrol than you receive in your paycheck.
And income isn’t the only factor that can impact your loan eligibility. If you’re a digital nomad and spend a large chunk of the year overseas, it can be hard to prove you’ve had a permanent UK address for the last three years.
You might also find that some lenders aren’t willing to offer loans for cars or vans that’ll be used to make deliveries, restricting your options.
Throw all these limiting factors into the mix along with your age and lack of credit history you’ll quickly understand why securing self-employed car finance as a young driver isn’t always as easy as going from A to B.
Proving your income
Ready to apply?
First things first, how can you prove how much you earn? Well, that might be easier than you think.
As a self-employed worker, you probably won’t have a load of payslips ready to show as proof, but you will have bank statements and your annual tax return.
Both can help lenders understand how much you typically earn each month and, perhaps more importantly, how much you spend.
It’s the difference between these two figures that matters most. That’s known as your disposable income – the amount you have left over to pay for things like a car finance payment once all your essential expenses are covered.
Ideally, your average monthly income will be high enough that you have plenty of disposable income available to fund your car finance.
However, if your income changes a lot month to month – the freelancer cycle of feast and famine – showing the lender your yearly income (for more than one year if possible) and statements listing any savings you have can help to reassure them that you’ll still be able to afford to make payments in the leaner months.
Improving your chances
Now, it’s time to work out your gameplan.
While we can’t guarantee you’ll be approved for car finance, there are steps you can take to boost your chances:
Build your credit score
As a young driver, your credit score could almost certainly do with some TLC. There’s no judgement here; you can’t start building a credit history until you turn 18 so time simply isn’t on your side. Start taking steps to improve your score straightaway. That could include registering on the electoral roll, keeping up with any other loan payments you have, and keeping your overall credit utilisation low (no maxing out your credit cards).
Save a deposit
If you can afford to wait a while before applying for car finance, saving up a decent deposit could reduce the amount you need to borrow and improve your chances of scoring an approval. 10% of the total purchase price is usually considered a good deposit, but if you can go higher, even better!
Double-check your details
When you’re rushing to fill in your application form on your phone while watching the end of that Netflix series everyone is talking about and waiting for your food to finish cooking, it’s easy to make mistakes. Unfortunately, just one tiny error – the wrong letter in your postcode, for example – could lead to a rejection you don’t deserve. Proofread every question carefully before hitting that submit button.
Consider a guarantor loan
Guarantor loans aren’t offered everywhere but they can help young drivers find an approval if they’re struggling to secure a loan alone. Think of it a bit like a safety net offering peace of mind to you and your lender; you’ll appoint a guarantor – usually a close friend or family member – who is willing and able to step in and make your finance payments on your behalf if you can’t. Generally speaking, your guarantor will need to have a good credit score and some lenders will ask that they’re over 21 and a homeowner.
Choose a cheaper model
While a high-end model might attract attention on your Instagram feed, choosing a more affordable pre-loved set of wheels could improve your chances of being approved. Not only will it limit the amount you’ll need to borrow to make the purchase, but it also means your monthly payments will probably be low enough that affordability checks won’t be an issue. Sacrifice some street cred for now and you could still buy your dream wheels later down the line.
