If you have credit problems and rely on self-employment income, most subprime lenders will require that you prove what you make by showing them your tax returns.
Because we have spent more than two decades helping credit-challenged car buyers here Auto Credit Express, we typically answer at least a hundred questions each month. Most are from potential borrowers, many with bad credit who want to know about the subprime car loan process. Here is one of those questions:
"I would like to know what your qualifications are to get approved for an auto loan for $19,060 and with hard to prove income since I am self-employed and a not so good credit score."
There are a couple parts to this question, so let's begin.
Auto Credit Express is Not a Lender
Like many of the questions we look at, it seems this person thinks Auto Credit Express is a lender. We aren't. What we do is match people to car dealerships in their area that work with a wide range of lenders. So, even if this borrower has less than perfect credit, the finance department we refer them to should have the experience to understand their situation.
Picking Out a Car First is Usually Not a Good Idea
To begin with, if you have credit issues, you shouldn't start out by choosing a car.
That's because the car buying process is different if you have bad credit. The first step – usually the hardest part - is finding a dealer willing to work with you. The reason you want to start here is that most subprime lenders loan indirectly – they work through car dealers and don't offer loans directly to borrowers.
Once you locate a dealer (we can usually help you with that part), when you visit them, you'll need to bring a number of things with you, including a valid driver's license or state ID, a cable or utility bill with your name and address on it, and your most recent pay stub.
With this information, the special finance manager will then determine if you meet the lender's basic requirements. In other words, do you have enough income, after your monthly bills are paid, to be able to afford a car loan plus the full-coverage car insurance you'll need?
But what if you don't have a pay stub?
Subprime Income Guidelines
Here is where it gets tricky: if you have bad credit and you don't have a pay stub, there is usually only one way you can prove to these lenders how much you make – and that's with the last two or three years of your tax returns.
As you know, you report self-employment income on a Schedule C and, after deducting for expenses, report your net income on your form 1040 tax return. Importantly, it's this net income that subprime lenders will look at (and use to compute your debt-to-income and payment–to-income ratios) to see if you qualify for a car loan.
This means that if you've been deducting too many expenses or haven't reported all of your income, both these ratios could be off. In most cases, this means you won't get approved for a car loan.
The Bottom Line
The bottom line is this: if you have bad credit and can't prove enough self-employment income with your tax returns, you won't qualify for a car loan.
But if you can prove your income, you're ready to take the first step and Auto Credit Express is here to help. We have a nationwide network of car dealerships that are trained in special finance. This means they have the lenders and know-how to help people in all types of credit situations.
Our service is free, fast, and there's no obligation to buy anything. See what we can do for you by filling out our car loan request form today.