If you’re self-employed you’ll know that getting car finance can be tricky. With a fluctuating income, it can be difficult to prove to lenders that you’re a safe bet. However, with more and more people being self-employed – more than 5 million in the UK – lenders are now adapting and making it easier for self-employed people to access finance.
Buying a car is one of those situations where you may need to apply for finance. If you’re self-employed and looking to buy a new car, you’ll no doubt be considering the options available to you. So, whether you’re thinking about paying for a car outright or applying for finance, here we look at the different options.
How to Secure Finance?
Not everyone has the resources to buy their car outright. If that applies to you, you’ll need to look at finance options. It can be difficult for self-employed people to secure finance, particularly if their earnings are irregular or unpredictable. But there are steps you can take to nudge things in your favor.
Firstly, check your credit report. You can do this by logging on to one of the three credit agencies in the UK: Experian, Equifax, and Trans Union (Credit Karma). Check that all the information about you is correct. Notify the agency if you notice any inaccuracies and ask for any closed accounts to be removed from your record.
Even simple things such as canceling unused credit cards and registering on the electoral roll can help improve your credit score. As will paying off any debts you have.
When applying for finance, be prepared to show your latest trading accounts and bank statements so lenders can make an informed decision. Look for companies like Go Car Credit who offer finance deals specifically tailored to self-employed people.
The Pros of Paying Upfront
When it comes to buying a car, like with most things, cash is king. If you can afford to pay in full for your car upfront, there are some obvious benefits. You’ll own your car outright, which means that you won’t have any repayments or interest to budget for. You’ll also be able to sell it if you need to.
However, cash buyers may find that dealerships aren’t willing to give as good a deal on their cars to those who aren’t taking out one of their payment plans. So, you’ll need to do the maths to figure out which option works out to be the better deal.
When Finance can Beat Cash
There are some instances where you can get a better deal with finance than you can with cash, such as with a personal contract purchase (PCP) deal.
With a PCP, you pay an initial deposit for your chosen car, followed by a monthly payment for a set term. At the end of the term, you can either choose to pay a ‘balloon payment’ to keep the car or use it as equity to buy a new car through another PCP deal.
The benefit to the consumer is that car manufacturer is likely to offer great deals through PCP to encourage people to buy their cars, knowing they’re likely to come back once the PCP agreement ends. According to What Car, you could save £500 on a Mazda 2 or £883 on a Peugeot 108 by choosing a finance deal over buying outright.
It’s important, however, to do your sums to make sure that you get your monthly PCP payments right. Making them as low as possible isn’t always the best approach.
However, you finance your car, make sure to do your research beforehand so you can make the right decision for you.