If you have bad credit and have a job but do not get a W2 at the end of the year you need to be careful how you report your income in order to qualify for approved auto loans
We have been there
You should be aware of the issues you could be facing If you don't receive a W-2 form every year and you're considering financing your next vehicle using no credit auto loans.
We understand your situation because we've been doing bad credit car sales for almost twenty years at Auto Credit Express. In that time, we've managed to get approvals for hundreds of buyers for a problem credit auto loan.
We know why a tote the note dealer won't help your credit score and we can explain the loan process to reduce your chances of repossession. Buyers outside our retail areas can also fill out our online car loans bad credit application to find an appropriate dealer in their area.
But one thing that pushes many poor credit buyers to in house financing dealers is how they're paid. While many should be receiving a W-2, they're employed by individuals that are trying to avoid paying payroll taxes.
If you are an independent contractor, you'll receive a form 1099 instead of a W-2 from your employer. You then report this income, less expenses, on the Schedule C of your 1040 income tax form.
The IRS has specific rules on whether you are an employee or an independent contractor.
To do this, the IRS looks at 3 things: behavioral control, financial control, and the relationship of the parties.
Behavioral control – if you receive extensive instructions on how, when or where to do the work, what tools or equipment to use, what assistants to hire to help with the work or where to purchase supplies and services, you are usually considered an employee. If not, you could be an independent contractor. Extensive training on how to perform the work also might suggest that you are an employee.
Financial control - If you have a significant investment in your work, if you are not reimbursed for some or all business expenses, or if you can realize a profit or incur a loss, this suggests that you are in business for yourself and that you may be an independent contractor.
Relationship of the parties - If you receive benefits, such as insurance, pension, or paid leave, this is an indication that you may be an employee. If you do not receive benefits, however, you could be either an employee or an independent contractor. A written contract may show what both you and the business intend. This may be very significant if it is difficult, if not impossible, to determine your status based on other facts.
Because it saves money at tax time, independent contractor income isn't always reported correctly on tax returns. And while this can reduce tax payments, it can prevent people from getting a loan, especially if their FICO scores fall below 640.
Proof of income
While traditional lenders usually don't require proof of income, this isn't the case with lenders that offer horrible credit auto loans. If the income isn't on a tax return, then it isn't there. Even with supporting bank records, if it isn't on a tax return, you can't prove it.
Most bad credit lenders have minimum monthly income requirements. They use income to compute a debt-to-income ratio to come up with a budget for a car payment. This can affect individuals with 1099 income in two ways:
1. Typical bad credit lenders have minimum income requirements of $1,500 to $1,800 per month. This means your income tax return needs to show income after expenses of between $18,000 and $21,600 a year
2. If you income is enough but your monthly debts are too high compared to your reported income (because you actual income is higher) you still won't qualify for a problem credit auto loan.
The Bottom Line
As an independent contractor with bad credit, you need to report all your income for the best chance at qualifying for a bad credit car loan. Otherwise, lenders that offer bad credit auto loans may not be able to approve you
Auto Credit Express has helped thousands of individuals with bad credit buy cars and establish their car credit through a nationwide network of affiliate dealers that specialize in second chance auto loans.
So if you're serious about getting your auto credit back on track, you can begin now by filling out our online car loans bad credit application.