Self-Employed Car Finance

HP is a pretty good option for self-employed workers planning on owning a car for the long term. While they pay more upfront, they’ll own the vehicle at the end of the period, meaning they can keep it for years or sell it. Of course, you can own it with a PCP too – but you’ll have to cough up a couple of grand for the final balloon payment.

The downside of an HP deal is the monthly repayments. It can be considerably more than a PCP deal. So ultimately, it depends on whether you want to swap your car out every 3 or 4 years or suck up the higher payments and own it soon.

If you don’t plan on keeping a car for more than 4 or 5 years, a PCP might be a better deal.

When compared to an HP, you pay significantly less money a month. You’d have to make a balloon payment at the end of the contract if you wanted to buy the car outright. You can either hand the vehicle back or take out a new deal if you don’t. Many self-employed drivers happily do this and enjoy switching out their cars every three years.

The PCP is beneficial because you don’t have to make your mind up at the start. If you love the car and want to keep it at the end of your contract, you have the option to – assuming you can afford it. Ultimately, it’s a personal choice.

One thing to note about Personal Contract Purchase deals is that you’ll have a mileage limit. You’ll have to pay harsh penalty charges if you drive over this.

So if you log many miles a year, HP is probably a better option.

So we all know about PCPs and HPs…but what on earth is a PCH?!

A PCH is a Personal Contract Hire and is a lease deal, meaning you rent the car over the contract term (usually between 3 and 5 years).

A PCH is for self-employed drivers who don’t want to own a car. They want a decent and reliable vehicle for three years, and then they’ll take out a new deal.

Ultimately, PCH is the most convenient of the above finance options and offers the lowest monthly payments. However, you will never own the car, meaning you’re sinking money into driving it that you can never get back (by selling). But, It can be a stress-free way of getting a new car if you can afford it.

Like a PCP, you will have a mileage limit you must keep or face penalties.

ntage of your total available credit can indicate to lenders that you’re a responsible borrower. This is also why closing credit cards you don’t use – and reducing the amount of credit available to you – won’t necessarily improve your score.

Ahh, yes, the good old-fashioned way! A personal loan was the most common way of getting a car (aside from buying it upfront). You’d walk into a bank, give them some information, sign on the dotted lines and walk out with a loan to go and buy a car.

The personal loan is still a standard method of car finance and one that we rate highly. The main benefit of a personal loan is the simplicity and freedom you have. You can buy a car wherever you like when you receive the money. You can buy from the dealer of your choice. Ultimately, the bank doesn’t care – as long as you make your repayments!

The main thing to think about with personal loans is the interest rate. The rate offered can vary significantly based on your credit and financial history but can even change yearly.
With that in mind, it’s worth comparing your loan interest rate to a Hire Purchase deal. They both function similarly, so choose the lower interest rate!

Make sure you’re aware of your credit history and how good your credit score is. Nowadays, this is a breeze to do. We often recommend Equifax, Experian, or TransUnion. You can do this in less than 5 minutes.

It’s essential to check your credit score periodically, usually once a month. You want to check for inaccuracies, errors, or misunderstandings that could adversely affect your credit report and, ultimately, your chance to get car finance.

Checking your credit file will give you complete visibility on what you’re doing right and wrong. If something is negatively impacting your credit score, you should be able to see it on the credit report and alter your financial behaviour to improve it.

Whether you’re self-employed or not, you have to be able to demonstrate an excellent financial history.

Before you apply for a car finance deal, it’s vital to get your finances in order. Make sure you have proof of income evidence that is trustworthy and reliable.

You’ll have three years of relatively consistent earnings and a steady income in an ideal world. If this is the case, you should have no problem getting self-employed car finance.

It might be harder to prove you’ve got a steady income if you’re newly self-employed. In that case, you’ll want to ensure your outgoings are as low as possible.

If you can, try to cancel any non-essential subscriptions or payments and settle old loans and debts. Also, close any joint bank accounts attached to people with a poor credit history.

It’s an old classic and probably the easiest to do on this list. Make sure you’re on the electoral roll!

The register is vital as lenders will often check you’re on it to confirm your address and facts as part of a credit score check. Also, being on the electoral roll gives your car finance application more credibility.

Naturally, the more years of information and trading account data you can provide, the better. A more extended history means more time to prove your eligibility and ability to meet repayments.

Three years of history used to be the gold standard, but as more and more people become self-employed, lenders have relaxed their stance. You can often find a self-employed car finance deal with 1 or 2 years of trading account history.

If you’ve been self-employed for less than a year, your private bank account must be in good standing – as you’ll likely need to show these statements to a potential lender. It’s essential to ensure nothing could damage your application: try and avoid using any gambling services before applying for a vehicle finance deal.

Never exaggerate your income. Always be upfront and honest about your pay – or it’ll come back to bite you.

If a lender looks deeper into your details and finds out you’ve been fibbing, they’ll turn down your loan, damaging your credit rating.

If you think you have no chance of success, don’t apply to more than one lender. Take a few months to build up your credit rating before trying again

A larger deposit means less risk for the lender. If you can afford to put down something like a 20% deposit, your chances of getting accepted for a self-employed vehicle finance deal are much higher.

Even if you can’t afford a big deposit, 5-10% will improve your chances. Also, it’ll reduce your monthly repayments!

Consider a guarantor loan if you’ve tried everything possible and can’t get a car finance deal.

Guarantor means having someone else agree to be your backup: so if you fail to make the repayments, this person will step in and cover for you. Of course, this requires a lot of trust between you both, and it’s most common for this person to be a close family member, like a parent.

While this might not be the most comfortable option, it’s still an option – and it might be the only one if you’re struggling to show proof of income or have a poor credit history.