When you walk through the door of a dealership, car sales representatives are hoping for one thing: to sell a car to make a profit. But in order to do so, a few factors must be on the bargaining table—good credit, valid ID, down payment (or a trade-in car), a basic understanding of financing, and (most importantly) a reliable source of income.
For self-employed workers, the latter may be harder to prove than the average salaried employee. Any self-employed worker who makes at least $400 has to file a 1099 form to pay self-employment taxes. While that means they’re making enough for their work to not be considered a hobby, that clearly isn’t enough to finance or lease a decent used or new car.
The most common auto loan terms range from 24 to 60 months. However, in recent years, 72 and 84-month car loans have become more popular, with the average loan term in 2021 coming in at around 70 months.
Longer loan terms represent a higher risk for lenders, so unless self-employed workers have long-term contract jobs with predictable income, auto loan companies may be skeptical about the stability of their income.
Here’s what self-employed workers should plan to do ahead of time to get auto loan approval.
Pay Self-Employed Taxes on Time, Every Time

What does an auto loan have to do with self-employment taxes? Quite a bit. Because self-employed workers can often hold on to more of their money at once without immediate deductions for federal and state taxes, you can also end up owing a considerable amount by year-end (unless there is a payment plan set up with the IRS for auto-withdrawals). Depending on the amount owed, this will make it that much harder to have a down payment on an auto loan.
Lending institutions will more than likely ask for at least two or more years of tax returns to make sure they match the income and that the taxes were paid off in full.
Know Your Credit Score

Just as you should know your credit score before applying for a credit card or mortgage, the same suggestion applies to car loans.
On a scale of 300 to 850, a “good score” is considered to be in the high 600s and mid-700 range. For self-employed workers who don’t have much credit history, make sure to take advantage of other ways to boost your credit score.
One clever way to increase your score is to use a program like Experian Boost. Experian Boost may take into account timely rent payments, video streaming services, smartphone, and landline phone service, Internet service, water bills, solar power expenses, gas, and electricity bills. Setting up an account may instantly boost your score.
In addition, here are some other well known ways to boost your credit score:
- Pay off your entire credit card balance on time, every time
- Avoid closing your oldest accounts, even if you don’t use them all that often
- Avoid using too much of your credit limit
- If you have multiple credit cards, try and spread out payments across different cards rather than only using one card for all your purchases
- Maintain different types of loans. Though paying off debt is a good thing, closing out one of your loan accounts may actually cause your score to decrease
- Be patient and be consistent. Improving your credit takes time, so don’t expect your credit score to rise overnight.
If there are problem areas with your credit or higher-than-usual credit card balances, try paying off as much of those debts as possible to increase your credit score. You’ll also want to avoid canceling credit cards with a balance on them, and canceling credit cards you’ve had for a long time. Even if they are not in use, credit cards with a zero balance can help your credit history. Canceling joint credit cards after separation or divorce, along with those that carry high annual fees, are a few legitimate reasons to cancel the card though.
Have Your Loan References Ready

Although it may seem like an invasion of your privacy, auto loan companies want to make sure you’re a reliable borrower. This means they will want to talk to your family members and clients who can also confirm you are a safe bet. It’s not abnormal for auto lenders to want the contact information for personal and professional references to speak to your work history.
If you rent your home, that means staying on your landlord’s good side. Auto lenders will want to confirm rental payments are made in a timely manner and that you actually live at the address listed on the application.
Maintain An Established Bank Account

While self-employed workers are responsible for their savings, flex accounts like health savings accounts, and any additional income (like stocks, bonds, and money market accounts), being able to prove where all of these other investments are coming from is imperative.
For something as small as pet insurance or as large as an Individual Retirement Account (IRA), keeping an organized set of records is advisable for self-employment tax purposes anyway. Additionally, auto lenders will want to see a consistent set of bank statements (at least six months but possibly more than a year’s worth) to make sure the annual income matches the bank statements.
Depending on the loan amount, seeing income on a monthly basis will matter as much if not more than annual income. (Note: For self-employed workers who get paid inconsistently, lenders may challenge the reliability of their payments.) While timely payments are a top priority for self-employed workers regardless, when making a large purchase, it becomes especially significant.
FAQs
Would a cash advance help prove self-employed workers can afford to pay?
While cash advances can help self-employed workers with a down payment, they tend to have higher interest rates and additional fees. A convenience check or cash advance should be the last resort when buying a new car—primarily because credit history matters even more if you’re self-employed.
How long do you have to be self-employed to get a car loan?
Lender requirements vary on how long you have to be self-employed to get a car loan. However, lenders are highly likely to ask for the last two years of tax returns and the last six months of bank statements to make sure you have a steady income.
How much money do self-employed workers need to make to qualify for a car loan?
Self-employed buyers will probably need to earn a minimum of $1,500–$1,800 per month (or $18,000 to $21,600 annually) to qualify for a car loan. Keep in mind that many of these lenders will also be subprime, and tend to charge higher interest rates than other lenders.
Can I qualify for an auto loan if I have a high debt-to-income ratio?
There’s a high probability that an auto loan will be rejected if the self-employed worker has a notably high debt-to-income ratio, usually more than 45%–50%. Try to pay down as many outstanding bills as possible at least a year or two beforehand.
How can self-employed workers prove their income?
Self-employed workers can verify their income by showing their tax returns, like a 1099 form, bank statements, or a profit and loss statement.
Will credit card consolidation improve credit scores?
While credit card consolidation can help improve credit scores long term by combining multiple credit card balances into a single debt, it will also temporarily lower your credit score.
A higher balance means a higher credit risk, so pay on time, and try to lower the balance as soon as possible—preferably a few months to a year before applying to buy a car.
Conclusion
While auto lenders may ask for more proof than the average corporate employee at a long-term job, knowing your credit history, having an established track record of responsible payments, and applying for an auto loan when you can afford to pay for the car of your choice will make the approval likelihood much easier. Because you have more control over your everyday finances (and tax-paying schedule), treat client payments as though you’re waiting to get an auto loan all year round. By doing so, it’ll be that much easier when you actually need a new vehicle.
Sources:
- Federal Trade Commission Consumer Advice. (2021, May). Credit scores.
- Federal Trade Commission Consumer Advice. (2021, July). Financing or leasing a car.
- Baluch, A. (2020, February 18). How to remove your name from a joint credit card.
- Internal Revenue Service. (n.d.). Self-employed individuals tax center.
- Zabritski, M. (2022). Experian’s state of the automotive finance market report. Experian.
- MyCreditUnion.gov. (n.d.). Your credit score.

Shamontiel L. Vaughn has been in the publishing industry for 17 years as a newspaper reporter, a web editor, social media specialist and a print editor. Her areas of expertise include K-12 and adult education textbooks; local and nationwide news; and health news. She’s also completed approximately 235 interviews in a variety of areas, including business management; entertainment; internet technology; law (entertainment, business and real estate); nursing; and travel. Some of her bylines can be found in the Chicago Defender, Chicago Tribune and CBS Chicago.