Getting approved for auto financing as a self-employed individual can be more complicated than if you were someone else’s employee. Gathering the necessary documentation and understanding lenders' requirements can increase your chances of securing financing on favorable terms.

How to prove income when you're self-employed

Unlike W-2 employees who can provide pay stubs, self-employed borrowers must show proof of consistent earnings through alternative means. Here are some key documents lenders may require:

Tax documents

• Annual tax returns: Form 1040 is one of the most widely accepted documents demonstrating yearly income. Lenders typically require the last two or three years of returns.

• 1099 forms: If you receive payments from clients rather than a paycheck, 1099 forms serve as official records of your earnings.

Financial statements

• Profit and loss statements: These outline your business’s revenue and expenses, helping lenders assess your financial health.

• Bank statements: Regular deposits into your personal or business bank account can serve as proof of income. Lenders may request six to twelve months’ worth of statements.

Additional documentation

• Contracts or invoices: If you have long-term contracts or invoices from clients, these can serve as evidence of future income stability.

• Business licenses or certifications: If your work requires licensing, providing proof of your active business registration may help strengthen your case.

Organizing and keeping detailed financial records can make the loan approval process smoother and demonstrate financial responsibility to lenders.

Why your credit score matters

Your credit score greatly impacts your loan eligibility and interest rate. The higher your credit score, the better your financing options.

Here’s how to improve your credit score before applying for a loan:

• Pay all bills on time

• Keep credit card balances low (between 15%-30% of your credit limit)

• Avoid applying for multiple new credit accounts right before pursuing an auto loan

Disputing errors and inaccuracies on your credit report can also help improve your score.

The importance of a down payment

Lenders often view self-employed applicants as higher-risk borrowers. If possible, save up for a large down payment before applying for an auto loan.

• A down payment that’s 10-20% of a vehicle’s purchase price can reduce the amount you need to finance

• A larger down payment can help reduce monthly payments and potentially get you a better interest rate

• It demonstrates financial stability and reduces the lender’s risk, increasing your chances of approval

Other strategies to strengthen your application

Lower your debt-to-income ratio

Lenders assess your debt-to-income (DTI) ratio to determine if you can handle additional monthly payments without overextending your finances. A lower DTI ratio signals lenders that you have enough income to manage new debt responsibly.

Consider a cosigner

If you have a low credit score or inconsistent income, add a cosigner with a strong credit history. This move reassures financing companies, as the cosigner takes on equal responsibility for making payments.

Separate your business and personal finances

Keeping business and personal finances separate makes it easier to provide financiers with clear income documentation. A dedicated business bank account can help track income and expenses more efficiently.

Show additional assets or savings

If you have financial assets like savings accounts, investments, or real estate, showing them to the lender can demonstrate financial stability and increase your likelihood of approval.

Are you ready to pursue self-employed car financing?

Financing a car while self-employed requires additional preparation. Keeping accurate financial records, improving your credit score, and making a solid down payment can significantly increase your chances of approval. Additionally, working with the right lender can increase your odds.

Credit Acceptance specializes in working with non-traditional buyers and can introduce you to one or more of the 15,000 car dealerships in our network. Start the pre-qualification process today to learn what financing you may be able to get.