Financing a Car When Self Employed! Shoooo

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purpleonlineadmin

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Well I did do a little search and couldn't find anything, so this could help future entrepreneurs.

So I'm in the process of purchasing a used vehicle, and approached 3 of the big 4 (started at Wesbank as I am a FNB customer, then ABSA and Standard Bank, still waiting on MFC/Nedbank) to get financing for a 2008 BMW 116i. All declined as I supposedly do not meet the "minimum requirements for a self employed individual" (BTW under normal conditions, i.e. being employed, I would have qualified easily as I had enquired and researched about this for over a year now).

So I asked them to give me details on requirements I have to meet in order to qualify as a self employed individual, with no bond yet (therefore no surety I suppose), and all I'll say is WOW:wtf::

1. I need to take out a deposit of R60k+ and I qualify for only +-R59k finance (note that it wasn't based entirely on affordability but "high risk" as they put it, again affordability wise I'm sorted and would easily clear this vehicle as I was willing to take out between 40%-50% deposit) - Wesbank

2. I qualify for only R50k finance, as I'm self employed - ABSA

3. Minimum net salary after expenses (which don't even go past R2 000pm( currently) must clear R10 500pm - ABSA

4. The deal is private so adds to the high risk, so buyer, i.e. myself, will have to bear the brunt of that.

5. I only have a credit card (Virgin Money) with a positive balance, which they say is not enough. I will be required to take on some retail debt and pay it off to prove credit wouldn't be a problem:confused:.

I still have BMW Finance to deal with tomorrow, who I've been told are a bit better with car finance, esp when it comes to private deals (or a dealership sale as I'm looking at an alternative to the beaut I had my eye on). Also have someone willing to be my surety, which is a last resort. Had a chat with the guys at BMWfanatics, and some biz owners also related to this process self employed and contracted individuals face when they need to finance cars and homes (homes being the worst, you will jump through hoops, some have had it easy with car finance though, esp pre 2008).

I guess credit isn't for the hardworking up and coming business individuals in South Africa. Does the MyBB community (esp entrepreneurs) have tales they would love to retell in here as well?

Edit: BTW this is what I have gone through, so will not be universal for all self employed individuals, just something to help show how different an employed persons finance is to an entrepreneur
 
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I had an interesting discussion regarding credit models. Here is my theory, but those that are credit score specialists weren't too happy with it. If you run your own business, you should in theory be a lower risk. The reason is the fact that by running a business ensures your understanding of cash flow better and also how to manage money and balance the books. Unfortunately, permanent employment is still seen in credit scoring as less risky.
 
Maybe it was the type of car and year model? In other words not new or a commercial vehicle.

I am self employed too and bank with Standard. At the end of last year one of their Asset and Vehicle Financing guys came to see me out of the blue and left his card. At the time I did not think much of it, anyway in April this year I decided to buy a new bakkie, called the guy and they financed it without any hassles. I just presented the signed agreement to the Dealership and drove the bakkie out of the showroom, that was also after putting on extras like canopy, seat covers, mudguard and rubberising the back of the bakkie.
Fixed the interest rate.
 
The way the banks work these things out is a total mystery to me... The same thing happened to me in 2008.

I wanted to buy a second hand car in the name of my business as I am self employed and I pay myself a pathetic salary! I do not have many expenses and my salary is therefore mostly just spending money!

All the banks turned me down. No idea why as they did not give any reasons. The absolute funny thing is that ABSA approved my based on my pathetic salary! All I can say is WTF?!?

EDIT: I forget to mention that my CC pays me a regular salary and I also get a regular payslip...
 
@BTTB Yeah that seems to also happen as well. It is various factors so could be anything TBH. How they calc credit scores for "self employed affordability" seems to be even more vague as normal financing, and I have met some people who have had car financing done super easily (who have complained about home loans though).

@Creeper +1. Right? You'd think our systems would be more pro business credit, but it seems under any credit rules, an employee you hire, and has 30 days notice if dismissed, is less risky than an employer who is keeping an entire business up and understands when and where their money is used.

@AcidRaZor I do co-own my own business and should surety fail I'll probably consider... :whistle:

@User217 I also pay myself the a minimum I can live on to ensure I don't have any wasteful expenditure with such a small business (considering I don't even buy things on credit and have no monthly payments I don't need weighing me down, I just work harder to meet my targets and that's a plus for the biz). There is honestly zero reason I should be paying myself over the top so I can afford a car ,or home in future, I should be able to afford now under normal circumstances (additional taxes to pay as well). Absolutely backwards thinking if I even considered some of their terms without question.

Thanks again for your feedback guys, I hope this thread helps contribute to the forum esp for small business owners in similar situations
 
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The best is to get a private banker who understands your capital and assets and would handle your finance needs the call centers dont seem to be capable of entering the right variables.
Otherwise you need your accountant to produce you a monthly salary slip to make your life easier.
 
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My wife is self employed and even though she earns a killer salary, banks don't care. When I applied for my car loan last year, I was earning R15K before deductions yet banks where prepared to loan me R250K for a car without deposit. When she bought her car 5 years before she had to do it hard cash, no loans.

Now try and buy a house, we got penalised for trying to apply for a bond with a certain bond company as my wife is self employed (yet continues to earn R10K+ pm more than me). So we did it on my smaller salary and had no problem.

Oh, and my wife has a successful business thats been runing for 13 years and it pays her a salary but the banks don't care.
 
cbrunsdonza said:
My wife is self employed and even though she earns a killer salary, banks don't care. When I applied for my car loan last year, I was earning R15K before deductions yet banks where prepared to loan me R250K for a car without deposit. When she bought her car 5 years before she had to do it hard cash, no loans.

Now try and buy a house, we got penalised for trying to apply for a bond with a certain bond company as my wife is self employed (yet continues to earn R10K+ pm more than me). So we did it on my smaller salary and had no problem.

Oh, and my wife has a successful business thats been runing for 13 years and it pays her a salary but the banks don't care.
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Yup exactly, when it comes to normal "affordability", your gross or net goes out the window TBH. Like Beachless put it, I think the private banker route is the best option for people who are self employed as taking the normal route is just playing Russian Roulette with your time and credit profile, but it is rather frustrating that the credit system is the way it currently is i.e. hand out easy credit to people who in reality could lose income within 30 days, compared to someone who runs their own business and suddenly considered higher risk!

We just have to take the shafting as is unless banks change! :cry:
 
AcidRaZor said:
Start a CC.

Get the CC to pay you a regular salary.

Apply as a normal salaried individual.
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This is not foolproof as they now usually have a field on the application forms asking if you own a share of the company that employs you and AFAIK if the share is > 10% they consider you self-employed. I took this one step further and started a trust which in turn became the sole shareholder in a CC which is your employer. So as I technically don't own a bean of the CC, I am not considered self employed and life is a LOT easier. Financial institutions seldom put two and two together and since they don't ask, I don't volunteer.
 
Wanted to create a Part II to this thread, but since this one is still on the first page let me just update and ask a few questions from the MyBB community.

So have the financing sorted out (with the details for the previous car I wanted to get, which has been sold now unfortunately, what a gem:cry:), now I'm looking around for various brands and models, and getting quotes from insurance and dealers based on retail values. Yesterday I noticed the same vehicle I wanted to buy (a 2008 BMW 116i Exclusive) now has a lower retail value than last month. Apologies for sounding like a noob, I always assumed this was based on the calender year, if the depreciation value is taken into account on a calender year, fiscal year or a rolling year?

The current quoted retail value on these models (and the prior 2007 models) have suddenly taken a huge knock compared to the amount I got last week, so was wondering if values got updated on the 1st of October or if I'm mistaken and don't just remember the right value I got last time (fearing madness now). I'd like to use that or previous quotes for negotiating so having 1 solid number I can play with with dealers and private sellers (Found a 2007 BMW 118i at KIA in Hatfield and according to these retail values, it's waaaay overpriced, around 20k extra).

I'm not the type that will overpay for the vehicle though so wouldn't be a train smash if sellers are not willing to negotiate, that is why I have the following cars also within my budget, and considering based on various factors in addition to pricing:

2007-2009 Audi A3
2009-2011 Ford Focus
2010-2012 Kia Cerato
2009-2010 Opel Astra

The BMW and Audi's are older and cost just around the same as the newer ones, but they are more emotional choices than sensible ones, so based on tastes rather than logic:p
 
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purpleonlineadmin said:
Wanted to create a Part II to this thread, but since this one is still on the first page let me just update and ask a few questions from the MyBB community.

So have the financing sorted out (with the details for the previous car I wanted to get, which has been sold now unfortunately, what a gem:cry:), now I'm looking around for various brands and models, and getting quotes from insurance and dealers based on retail values. Yesterday I noticed the same vehicle I wanted to buy (a 2008 BMW 116i Exclusive) now has a lower retail value than last month. Apologies for sounding like a noob, I always assumed this was based on the calender year, if the depreciation value is taken into account on a calender year, fiscal year or a rolling year?

The current quoted retail value on these models (and the prior 2007 models) have suddenly taken a huge knock compared to the amount I got last week, so was wondering if values got updated on the 1st of October or if I'm mistaken and don't just remember the right value I got last time (fearing madness now). I'd like to use that or previous quotes for negotiating so having 1 solid number I can play with with dealers and private sellers (Found a 2007 BMW 118i at KIA in Hatfield and according to these retail values, it's waaaay overpriced, around 20k extra).

I'm not the type that will overpay for the vehicle though so wouldn't be a train smash if sellers are not willing to negotiate, that is why I have the following cars also within my budget, and considering based on various factors in addition to pricing:

2007-2009 Audi A3
2009-2011 Ford Focus
2010-2012 Kia Cerato
2009-2010 Opel Astra

The BMW and Audi's are older and cost just around the same as the newer ones, but they are more emotional choices than sensible ones, so based on tastes rather than logic:p
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I was recently car shopping. Older cars are market up above retail book value (I do not know how they calculate the retail book value, since it doesn't reflect the reality out there).

I saw a 2005 1.4l Fiesta with 180 000km on the clock for R60 000, I saw a 2006 1.4l Fiesta 2-door with 100 000km for R90 000. I ended up buying a 2012 Ford Figo with 20 000km on the clock for R99 900.

Older cars (models out of production) just seem to be overpriced. Best value for money seemed to be models still in production but just a year or 2 old.
 
Most definitely, I do expect to pay a tad bit over retail which seems to be a standard and acceptable, I wouldn't want to pay 10-20k over value though, that is why the Ford Focus is added as well (which when I checked the retail value given and the ones scattered over Autotrader, seems fair enough). I'd feel real crappy and robbed if I paid most of those listed values online:sick:

Side Note: Sellers also do tend to sell these vehicles with zero research done and base their pricing on other "similar listings". You'd have a 116i Exclusive from 2008 and under 100k km's with a certain sticker price, and another 116i with the base Advantage package and more than 100k km's sell for waaay more (sometimes a R15k difference), which at first thought you'd think accident damage? You get the VIN, do a check and both are perfectly fine, only diff is the second seller didn't bother checking the retail value when adding their own markup.
 
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[Update]
Lost the 116i and 118i now as the KIA dealer sold it to someone else, but got an Audi A3 2.0 FSi and the banks are willing to finance:

72 months, prime+5 with a deposit of R52k (best they can do, and hell will see me first before I go 72 months on a car!!!!)! This must be how it feels like to be a leper :cry:

The search won't end though, still going at it as I have got this far and got approved. Now to haggle! I will keep saving though and see how close to cash price I can raise before just saying F em! It doesn't seem like it's going to be a great festive season for me though :sick:
 
purpleonlineadmin said:
[Update]
Lost the 116i and 118i now as the KIA dealer sold it to someone else, but got an Audi A3 2.0 FSi and the banks are willing to finance:

72 months, prime+5 with a deposit of R52k (best they can do, and hell will see me first before I go 72 months on a car!!!!)! This must be how it feels like to be a leper :cry:

The search won't end though, still going at it as I have got this far and got approved. Now to haggle! I will keep saving though and see how close to cash price I can raise before just saying F em! It doesn't seem like it's going to be a great festive season for me though :sick:
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Remember, you don't have to pay it over 72 months, you can pay it off quicker. My Ikon was financed for 60 months and I paid it in 48.
 
I think it might also have to do with how transparent your business is to the bank.

I was with FNB for as long as I can remember. Never had problems buying cars and house. Became self employed and from there could never get financing. Everything was cash from there on.

Years later I moved my local account to Standard Bank as my wife banked there and it just made things easier as its also the closest bank to me. About a year after that I moved my company account from HSBC to their [SB's] offshore division and linked it to my local account.

Have not made use of any financing since but have asked and had no problems getting a pre-approved bond and vehicle financing at good rates.
 
purpleonlineadmin said:
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3. Minimum net salary after expenses (which don't even go past R2 000pm( currently) must clear R10 500pm - ABSA

.....................
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Wait, you have about R2000 left after expenses? You wanna buy a 2008 BMW 116i? With no deposit, you're looking at an installment of over R2000. Does your expenses include petrol and insurance?
How much deposit are you willing to give? Seems like you're aiming a little high.
 
XennoX said:
Just remember to inform the bank 90 days in advance that you wish to settle. Also do capital adjustments regularly; I'd say quarterly.
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Are you talking about cars or homes? lol

Anyway, only loans over R250 000 (I think that's the figure) need the 90 days advance notice (if you don't want to pay the difference in their interest they would have earned on 3 months immediately).
 
beans100 said:
Wait, you have about R2000 left after expenses? You wanna buy a 2008 BMW 116i? With no deposit, you're looking at an installment of over R2000. Does your expenses include petrol and insurance?
How much deposit are you willing to give? Seems like you're aiming a little high.
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He meant his expenses does not even go past R2,000
 
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