388 King George Rd, Brantford, ON, N3T 5L8
My Garage

Buying a new car when you are self-employed

Buying a new car when you are self-employed

Being self-employed can be rewarding but there are numerous challenges you will experience. A common challenge you will face is being able to access financing for car purchases.

Our Kitchener auto loans team has a lot of experience working with the self-employed so helped us write this post.

Lack of innovation by mainstream lenders

The big 5 banks in Canada are still following the analog way of doing a Kitchener car loan. They expect the applicant to work one job, 40 hours per week, and have a payslip.

This old school work model was fine during our parents and grandparents' time but it no longer represents the reality of most Canadians.

There are over 2.9 million Canadians who identify as self-employed and that number is only going to grow.

Documenting self-employed income

The most common obstacle that self-employed Canadians face is documenting their income. Since these businesses are usually sole-proprietorship, it can be hard to separate business expenses from actual income.

What some proactive lenders are doing is asking prospective borrowers for their latest bank statements and income tax notice of assessments.

By using what you declare to the Canada Revenue Agency as your stated income and bank statements as proof of income, you should meet their underwriting requirements.

Lenders tend to be more apprehensive about giving an auto loan to borrowers that are self-employed so what they do is raise the minimum credit score requirement. This is something that is not advertised so you will never know if the lender is applying more rigorous underwriting requirements on you compared to someone who works a “traditional” job.

Getting the respect and service you deserve

Applying for a Kitchener car loan on your own is not recommended, there are many hurdles to overcome and there is no guarantee you will get a fair shake.

What you should do is enlist the help of a local car dealership that has experience helping self-employed Canadians like you. The dealership understands that your financial situation is complex but you are more likely to handle your finances better than someone who works a 9-5.

Reviewing your credit

The dealership will need access to your credit report to determine which lender is best suited for your needs. Thanks to deregulation and the Internet, your local dealership can access lenders from all over Canada with a click of their mouse.

Your credit score needs to be over 700 to get the best possible interest rates. If your score is not at that level, you may be carrying too much debt.

A good portion of self-employed Canadians uses their credit cards for business. If you are carrying a high balance, it will reduce your credit score and also reduce the maximum amount of car loan you can receive.

A few years ago, it would be very hard and expensive to get a car loan if you were self-employed but your local dealership has adapted and been able to provide you with fantastic options. You should reach out to your dealership and book a meeting with them to discuss your options. Not only will you get a great car but you will enjoy the stress-free buying experience.

When you’re ready for a car lease or loan, get in touch with the Kitchener auto loan experts at Northway Ford for great deals on auto finance.

Categories: Car Loan

Tags: ,