Self-employed car buyers with bad credit should be careful when filling out their tax returns. Claiming a lot of deductions may yield bigger savings, but it will also reduce the size of their reported income. And this might make it harder to get approved for a bad credit car loan.

Special finance lenders are willing to work with unique credit situations. But they still have requirements that must be met. For example, you will be expected to provide proof of a qualifying income in order to show that you have the means to pay back the loan. So, if your reported income is too small, it's likely that you won't meet the minimum income requirement.

How Tax Returns Verify Income for the Self-Employed

Tax season has arrived, so it's time for people to get their returns prepped and ready to be sent off to the Internal Revenue Service (IRS). For those who report to a regular job that routinely withholds income tax, return prep is fairly simple. Most of these individuals just fill out a 1040 form and send it in. At most, they may have some itemized deductions to sort out.

However, for those who are self-employed, the process is more complicated. First of all, throughout the year, a person who is in business for themselves must keep their books organized. Then, after the numbers are calculated, they will need to report a profit or loss on the Schedule C of their 1040 tax return.

As far as taxable income is concerned, self-employed consumers are permitted to deduct business-related expenses. And, obviously, the more they deduct, the less taxable income they'll have to report to the IRS. Yet, anyone who works for themselves and has bad credit who wants to buy a car should limit the amount of deductions they claim.

This is because, in lieu of paycheck stubs, special finance lenders will want to see tax returns from the past two years. They will use these documents to verify an applicant's qualifying income. Generally speaking, the minimum income requirement for a bad credit car loan is between $1,500 and $1,800 a month, pre-tax. So, if business deductions have brought an applicant's net self-employment income below $1,500, they will probably not be approved.

It should also be noted that qualifying income for a bad credit auto loan must be garnishable. Therefore, if an applicant receives disability benefits, they should be able to provide proof of additional (taxable) income that can be garnished.

Getting Prepped for a Bad Credit Car Loan as a Self-Employed Person

If you're a self-employed person with credit issues who needs to finance a car in the near future, there are a few things you should do. First, make sure that your taxes are done properly and that your reported net income isn't too low.

Next, you should request copies of your credit reports and check your credit score. Even if you're sure that your credit is damaged, you should know exactly where you stand. Also, this will give you an opportunity to look for errors on your credit reports that might be bringing your score down.

You should also gather up a utility bill to verify your residence, a phone bill (with a major carrier) and a list of at least six personal references. These are all documents that you will need to bring with you to the dealership when you're ready to purchase a vehicle. It will also be necessary to produce a valid driver's license.

Finally, special finance lenders typically cannot be contacted directly. So, you will need to find a dealership that has connections to them. These types of dealers have experience with subprime financing, and working with one of them will give you a better chance at car buying success.

Need help finding the right kind of dealership? Auto Credit Express can help.

Financing Assistance for Self-Employed Bad Credit Car Buyers

If you have bad credit, Auto Credit Express can help make the car buying process faster and easier. We can do this by matching you with a dealership in your area that can work with unique credit situations.

Our service is free and comes with no obligations. So, you can see what we're all about without making any serious commitments. Just fill out our simple and secure auto loan request to get started today.