An independent contractor was approved for an auto loan with a 1099-MISC tax filing statement

How to Get an Auto Loan When You’re Self Employed

Milad Hassibi December 10, 2018

Auto loans are easier to come by and more available than ever before. Most consumers simply arrive at their local bank and get pre-approved for an auto loan minutes later.

However, requirements for an auto loan can change depending on your income. If you are self-employed or are an independent contractor and need to get an auto loan, here is what you will need.

Getting an Auto Loan When You’re Self-Employed

One of the most important requirements for an auto loan is your income. Most auto lenders want to see a pre-tax income of $1,500 per month or more. If you do not make $1,5000 per month or more, it will be difficult to find a lender that can work with you.

If you do make at least $1,500 per month, you will need to prove it to the lender. For independentA man with a 1099-MISC form was approved for a auto loan while self employed contractors and those that are self-employed, you can give your lender your latest 1099 tax filing. This can be a 1099-K, 1099-MISC, etc.

A lender may also ask to see your complete tax filing for the 1099 form you submitted. In some cases, a lender may ask that you provide proof of income and tax filings for the last two years.

Another barrier that holds many self-employed consumers back from getting an auto loan is multiple sources of income. Auto lenders will only accept one 1099 filing, meaning you cannot combine two 1099 forms for the same year to make your income “appear” larger.

Even though you may have earned that money, lenders only review one single source of income.

Lenders also look at specific financial ratios to determine your eligibility as an independent contractor for an auto loan. For instance, your Payment to Income Ratio (PMI) should be no greater than .20.

This means that no more than 20% of your total pre-tax income should go towards your auto loan and the costs associated with owning a car.

Another important ratio is a self-employed person’s Debt to Income Ratio (DTI). Most lenders go by the rule that a persons living expenses and bills should no more than 50% of their income.

To find out your Debt to Income ratio, take your monthly bills and divide it by your total pre-tax monthly income to find your DTI ratio.

As an example, a person making $3,000 per month with $1,000 in living expenses has a DTI ratio of .33, lower than the 50% benchmark.

Final Note

It can be hard to find lenders that will work with you if you are self-employed or are an independent contractor. If you are looking to buy a new car but have less than perfect credit, CrediReady can help.

Our nationwide network of trusted dealers and verified lenders work with buyers in all credit situations. Take a moment to fill out our free no-obligation loan inquiry form and start shopping for your dream car today!

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