Self Employment on Bad Credit Auto Loans

In order for you to know how to qualify for approved auto loans with self employment income, you first have to identify the qualification issues. If you’re both credit-challenged and self employed you need to know the issues you’ll be facing when you apply for terrible credit auto loans.

There are poor credit car loan processes that allow potential buyers to avoid a tote the note dealer while reading up on many of the issues that often lead to repossession. Unfortunately, tote the note lots are sometimes the only choice for self employed buyers with bad credit if they either underreport or incorrectly report how much they make.

Self employed individuals are one of the most difficult bad credit auto loan approvals. This usually happens because self employed workers are responsible for keeping their own records and reporting this income on their income tax returns.

It may be possible for self employed individuals to reduce the amount of tax they pay by not declaring the full amount of their incomes. But doing this could prevent them from getting a car loan, especially if their FICO scored fall below 640. If regular banks don’t usually require proof of income, this isn’t the case with bad credit lenders.

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They require the verification of an applicant’s income through a professionally prepared tax return. Whatever isn’t listed or declared in a tax return, even with the availability of supporting bank records makes it invalid as a proof of income. Bad credit lenders require a monthly income of at least $ 1,500 to $ 1,800. Which means that self employed individuals need to report a minimum yearly net profit between $18,000 and $21,600.

Even if the reported net profit meets the above requirements, there is a chance that monthly expenses are out of proportion to the reported income. For example, someone reports an income of $2,000 per month. If this person’s real monthly income is $3,500, reasonable monthly expenses could be $1800. In this case, even though the actual debt to income ratio is acceptable, the difference between the reported income and the expenses would not qualify that person for a bad credit car loan.

If you are self employed, you have to consider the income you report because this will affect your debt to income ratio as it relates to qualifying for a bad credit auto loan. If the income declared on your income tax return is too low or if your monthly debts are not in line with your reported income, a bad credit lender will definitely not approve your loan application.

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