How to better your chances of getting your problem credit auto loan application approved if you receive a 1099 at the end of the year
Non employee income
If all or part of your income is as an independent contractor and you have poor credit, there are things you need to understand when applying for horrible credit auto loans.
During our twenty years of involvement with bad credit car sales here at Auto Credit Express we've seen what can happen if you don't understand. It's also one reason we built our website – so applicants could research issues such as credit scores and extended warranties as well as today's topic, how the way you're paid can affect your application for no credit auto loans.
Independent contractors receive a form 1099 instead of a W-2 from their employers. This income, less expenses, is then reported on a Schedule C of the 1040 income tax form.
But just because you receive a 1099 doesn't mean you should be. The IRS looks at three things to determine whether someone is an employee or an independent contractor:
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 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.
Because it saves them money, independent contractors sometimes further reduce their income by inflating expenses. This reduces taxes but it can also lead to problems especially if their FICO scores fall below 640.
Traditional lenders usually don't require proof of income but this isn't the case with bad credit lenders.
With independent contractors, the net income that appears on a tax return is the income bad credit lenders will use to qualify for a loan.
Most bad credit lenders have minimum monthly income requirements. The net income amount is also used to determine a debt-to-income ratio as well as to compute a car payment budget. This can affect people with 1099 income in two ways:
1. Bad credit lenders typically have minimum income requirements of $1,500 to $1,800 per month. This means your income tax return needs to show a net income after expenses of at least $18,000 to $21,600 a year
2. Even if you net income meets this standard, your monthly debts could be high when compared to your reported income because you actual income is really more. If it is, you won't qualify for a bad credit auto loan.
The Bottom Line
If you're an independent contractor and have bad credit, it's important that you correctly report your income and expenses. Doing so will give you your best opportunity for approved no credit auto loans.
Just as importantly, at Auto Credit Express we specialize in placing applicants with bad auto credit with dealers that can give them their best chance at getting approved for a bad credit car.
So if you're ready to take that first step in improving your car credit, you can begin now by filling out our online car loans bad credit application.