One of the most pressing issues for the self-employed is the burden of proof when it comes to income verification. For many lenders, it seems all too easy to misrepresent the amount of income one receives when you are the one in charge of compiling the information. This reasoning is why many lenders hesitate unless you can present them with a more traditional form of income verification. This frustration can have those who are self-employed wondering how to take out a car loan.
The good news is there are ways to provide income verification even if you’re the only employee in the company.
How to Take Out a Car Loan
A car is a necessity in most cases. For the self-employed, it may also be how they earn their money.
One issue that many self-employed workers face is that unlike the thousands of other workers in their region, they do not receive a traditional W-2 that provides income and tax information. This puts independent contractors and small business owners in quite a predicament.
When looking for a car loan with a reasonable interest rate, you need to have a couple of things: proof of income and good credit, if for whatever reason you only have one of these then don’t fret, there are still options available.
Debt To Income Ratio
This is a phrase you will need to familiarize yourself with if you want to receive funding from any type of lender. Your debt to income ratio is just as it sounds. It’s a simple formula that lenders use to help determine if you will be able to pay them back with interest.
For most lenders, your debt to income ratio should be no more than 45 to 50 percent of your net income.
To determine your debt to income ratio before looking for a lender, you can follow this equation: monthly bills (include your potential car payment and insurance) divide by your monthly net income. If your answer is more than 50 percent of your income, then you may want to work on lowering your cost of living.
Proving Your Income
Before you head out to the dealership to try and secure funding, make sure you have proof of income. For the self-employed, there are some options you can use.
Create Your Pay Stub
We are not talking about writing down your income or typing it up on a Word document and taking it to the lender. We are talking about creating a history of pay stubs that you can take to your lender as verification of income.
You can find this impressive feature at www.paystubs.net as they have provided many self-employed with official documents showing how much income they bring in and how much they pay in taxes.
Getting Ahead
Whether you’re wondering how to take out a car loan or how to provide verification of income, there is no need to fret. Obtaining pay stubs is simpler than you think.
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