Working for yourself as a freelancer has numerous benefits, though it can make purchasing a car more of a challenge. The average annual cost of car ownership jumped by 24% in 2019 to $9,282 (or $773.50 a month), the AAA reports. Increasing vehicle prices, interest rates, and expensive 72-month car loans are the reason for the rise. Freelancers need to budget carefully to make sure they can afford the cost of ownership. Applying for a car loan can also pose extra obstacles, but all of this can be navigated with smart thinking.
Choosing the right car
Before purchasing a car, it’s important to research car reviews and ratings. You ultimately want to look for cars that score high for quality and dependability. As a freelancer, it’s important your car works smoothly when you need it to, so you can get on with your workload interrupted. Additionally, it’s smart to consider the total cost of car ownership. You may discover some makes are fairly inexpensive to purchase outright but end up costing you more, in the long run, thanks to regular maintenance and repairs, insurance, and depreciation. Have a look at the estimates of these expenses, so you choose a car with overall low maintenance costs and that holds its value.
Get pre-approved for your loan
Getting pre-approved for your car loan before visiting a dealer will reveal any issues with your credit score early on and give you time to improve your rating. Lenders usually don’t like giving loans to freelancers with bad credit as they’re seen as a credit risk. Dealerships also often increase rates way beyond what your credit score actually qualifies you for. For example, if you qualify for a 5% interest rate, the dealer may hide this from you and offer you 8%. Getting pre-approved can help you negotiate a better rate with the dealer — just always be sure to read the terms and conditions regarding downpayment and length of the loan.
Applying for a loan
When applying for your car loan, you’ll likely need to provide proof of steady income. As a freelancer, of course, this may be a challenge. Instead, you may be asked for two years of tax returns to prove your creditworthiness. This, however, may also be a problem for you if you don’t have two years ‘ worth or if you have too many deductions on your taxes (which decreases your apparent income). In this case, there are several things you can do. For example, limit the number of tax deductions you make on your tax returns, so you show more apparent income. Additionally, working to establish a longer work history shows lenders you’re reliable and financially stable. You can also make a larger downpayment to minimize the lender’s risk and further demonstrate financial security.
Buying a car as a freelancer is a big investment. Following these smart tips can help you qualify for a loan and purchase a reliable and affordable car you’re happy with.
Challenges aside, if you’ve got a proven history of earning money for 2 years while being self-employed, you sometimes won’t have much of a drag getting approved for a mortgage, explains Carpenter. The gold standard is to point out two years of tax returns.