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Handy Car Loan Guide for the Self-Employed

Posted on 26 November 2015

Remember when you first thought about striking out on your own?  The freedom of self-employment like a tantalising vision glinting in the sunlight… Too much? Well, whatever your reasons were for leaving employment to build something yourself, a common experience for the self-employed, is the realisation that it is more complicated than simply doing what you’re good at and getting paid.

Tax, customer management, cash flow forecasting, marketing and more. There are a multitude of hats a self-employed person has to wear and it can take some time to get acquainted with the new rules and requirements.

Car finance is one area that can be trickier to navigate for the self-employed. But it needn’t be if you have some good information to hand before you get the application ball rolling. If you are about to commence your next car shopping exercise and will need a car loan, you’ve come to the right blog. Here’s what you need to know about car loans for self-employed people.

360 degree thinking and car loans
Perhaps the most important thing you need to consider when applying for a car loan, is the approach of the lender you’ll be dealing with. Some lenders are very ‘check-list’ in their thinking, which in our view doesn’t serve the interests of self-employed people very well. We take a different approach. By spending some time with you – talking about your individual circumstances and understanding the complete picture - we’re better able to approve a car loan that works for your needs.

Car loan Interest rate
Don’t be fooled into thinking that just because you are self-employed, you’ll need to pay a high interest rate. Similar to what we mentioned above, the trick is to deal with a lender who will get to know you rather than ticking a few boxes. You’ll be amazed at the difference factors such as how long you have been at your current address, or how long you have been in your profession or trade for (not just the time you have been self-employed) will make. When it comes down to it, interest rate is calculated based on how secure the lender feels about providing the finance you need. And with the right lender, security is proven through a number of factors, not just your financials.

Proof of income
It is always best to provide your financial accounts if you have them when applying for car finance. But we understand that sometimes this is not possible for a couple common reasons.

(1)  You are new to self-employment and don’t yet have full year accounts;
(2)  You have been trading for a while, but don’t have up to date accounts – i.e. the preceding financial year.

Not to worry – recent bank statements will do the job. If you don’t have your financial accounts to hand, simply get six months bank statements ready and waiting to be provided with your car loan application.

Car loan repayments and cash flow
Cash flow – a key challenge for the self-employed. Certain times of the month can be tighter than others depending on timing between payments in and payments out. When you’re setting up your car loan, make sure you take a good look at your cash flow to identify the tighter times and find the right dates and repayment frequency that will work for you. For example, you might get all your invoices in on the 20th and prefer to make your repayments monthly on the 22nd. Or you might find it more manageable to make repayments weekly or fortnightly. It really depends on the rhythm of your cash flow; so take a look and work out the best structure for your need.

Interest payments, expenses and tax
When you purchase a vehicle under your company name, you can claim a number of expenses against the business, including: the interest on your car loan repayments – i.e. the amount of interest paid to service the loan in the financial year; vehicle maintenance and repair; road taxes; and of course the cost of getting from A to B for business purposes, petrol. Make sure you talk to your accountant and get the right rhythm set-up to ensure you assign the costs of running your car correctly.

Fringe Benefit Tax (FBT)
If you are buying the vehicle under your company name, remember to factor in FBT. We’re not experts in this area, but it is definitely a good idea to know what the FBT will be on your new vehicle. Calculated based on the value of the vehicle and percentage of personal use, FBT may be added to your personal tax obligations. Give your accountant a call and find out what you’ll need to account for next tax time.

New Zealand – a nation of self-employed and small business owners. It is gutsy to strike out on your own, and in our view that counts for a lot. For car loans that work for self-employed people, give the team at Online Car Loans a call on 0800 88 2000 or Contact us here. We’ll work through the detail with you to find the best solution for you and your business.

 Note: this article does not represent personal financial advice