Consumers who’re classified as independent contractors might have trouble getting approved for a car loan. This is especially true if they also have bad credit. Fortunately, it’s possible to get an auto loan if you have bad credit and have nobody to sign for you.
Anyone who has bad credit must understand how their income is reported and perceived. The amount of net income a person makes plays a huge role in the approval process for an auto loan. If income is not reported properly, it can have a negative impact on the approval process.
As Valley Auto Loans, we’ve been helping consumers get approved for auto loans. We understand the role that bad credit plays in the approval process, and we do everything we can to get consumers approved. We work with a large network of high-risk lenders, so we know what they expect from a credit application.
There are several requirements that applicants must meet. After many years of experience, we’ve witnessed many consumers get denied, and although these individuals made enough money to be qualified for a loan, they had poor credit, and they had nobody to cosign for their loan. There are a few reasons why these individuals were not approved.
If you’re a regular employee, then your employer will send you a W-2 statement, which is sent annually. However, income reporting is a bit different for consumers who’re classified as independent contractors. Unlike regular employees, independent contractors receive a 1099 form.
Once an independent contractor has received their 1099 forms, he or she must report their income on a Schedule C form, which reveals their net income. The net income calculated with the Schedule C is transferred to a 1040 federal tax return form. A lot of independent contractors choose to report more expenses than they really had, and this can cause some problems.
Although it might enable the contractor to pay less money to the IRS, it can also cause the IRS to perform an audit. Independent contractors who have a FICO score that is less than 640 can have trouble getting an auto loan. Regular lenders don’t usually require consumers to show proof of an income because they rely heavily on the person’s FICO score.
However, lenders that offer high-risk auto loans are forced to focus on proof of income because they serve people who have bad credit. If an independent contractor is trying to get an auto loan through a high-risk lender, then the lender will use the net income that the contractor reported on his or her IRS forms, which is one of the reasons why it’s not a good idea to fake higher expenses.
Problems with Income
Most high-risk lenders will only help regular employees who make a certain amount of monthly income, but fortunately, the income requirements are usually quite small.
However, when doing business with an independent contractor, high-risk lenders look at how much net income the contractor reported on their tax return. A high-risk lender will also use the net income figure to determine an applicant’s debt-to-income ratio and what type of car the applicant qualifies for.
What Happens Next
After checking an independent contractor’s net income, a couple of things can happen. Most high-risk lenders require applicants to be making at least $1,500 every month, so the applicant must be making about $20,000 of net income.
If a person is making the required amount of net income, then it would seem like he or she would automatically be approved for the loan. However, it gets a bit trickier. Monthly expenses must be factored in, which could include utilities, mortgage and rent.
Once these expenses are added to the equation, the applicant ends up having a debt ratio that is too high, so the lender denies the application. Independent contractors need to make sure that they’re reporting the correct amount of net income, and they must do this every year.
Many high-risk lenders want to see several years of tax returns, so it’s important that all of the statements display an acceptable amount of net income. High-risk lenders are checking to see if the net income is stable across several years.
Tips for Getting Approved With No Cosigner and Bad Credit
There is no doubt that it can be difficult to get an auto loan if you have no cosigner and bad credit. However, consumers must know that it’s not impossible.
With a decent down payment and flexibility, it’s possible to get approved. Consumers who manage to get approved will probably end up paying high interest. To increase the probability that you’ll get approved, there are several tips that you can use.
Get Your FICO Score
If you’re serious about getting a bad credit auto loan, you need to know your credit score. Without a credit score that is below 500, it can be difficult to qualify for any type of loan. If you have really bad credit, a larger down payment can help you get approved. Anyone who is currently going through bankruptcy might want to hold off on trying to get approved for an auto loan.
Save Some Cash
When trying to get approved for any type of loan, it helps if you have a lot of cash to use. You can significantly improve your chance of getting approved for a bad credit car loan if you have enough cash to use. A large down payment will show your commitment to paying for the car. High-risk lenders like to see a bigger down payment because it helps to reduce the amount of risk that they must take.
Although this tip is very simple, it’s extremely powerful. When working with a high-risk lender, you want to be upfront and honest. You should fill out the credit application with complete honesty and make sure you answer the questions thoroughly. By just being as honest as possible, you can increase your chance of getting approved.
The Bottom Line
Many people believe it’s impossible to get approved for an auto loan if they have bad credit and no cosigner. However, it’s the perfect time to apply because it has become much easier to get approved. In the past, having bad credit and no cosigner almost guaranteed an instant denial, but over time, the industry has changed, and many new opportunities exist.
Valley Auto Loans could be the solution to your problem. Every day, we work with a large network of high-risk lenders, and these lenders specialize in approving consumers who have no cosigner and poor credit. If you get approved through these lenders, you’re not going to end up driving away in a Ferrari, but you have an excellent chance of getting approved for a reliable vehicle.
If you need to finance a car but have no cosigner and bad credit, you don’t have to feel like it’s the end of the world. Valley Auto Loans boasts an excellent approval rate, and we can get you the financing that you desperately need.How To Get An Auto Loan With No Cosigner And Poor Credit by Jordan L Bourland