Working as an independent contractor is an attractive arrangement for many people. It offers freedom not present in many employer-employee arrangements. However, it also has its drawbacks and difficulty qualifying for financing is a major one.
If an independent contractor has poor credit, the situation becomes even more uncomfortable, especially during periods of restricted lending.
Independent contractors receive a Form 1099 that reflects their annual income. This figure, minus expenses, is reported to the Internal Revenue Service on a Form 1040, Schedule C. Rather than assuming that they are properly classified as an independent contractor, workers should review the IRS guidelines regarding this issue.
If they determine that their level of behavioral and financial control and relationship with the associated party is that of an independent contractor, these individuals often itemize expenses to reduce their tax burden.
Some of them even inflate expenses, which can lead to issues if they have a FICO score under 640. When they apply for bad credit auto financing, independent contractors must provide proof of income.
Most poor credit auto lenders require income of between $1,500 and $1,800 per month, which equates to an $18,000 to $21,600 net annual income. Net income from the tax return is also used to calculate the debt to income ratio and approved car payment range.
If net income meets the minimum threshold but debts are high, the individual may not qualify for bad credit auto financing.
Independent contractors with poor credit should report accurate income and expense figures. This provides them with the best chance of being approved for a poor credit auto loan. They should also minimize their debts and make an effort to improve their credit score.
Taking these steps before applying for a car loan may increase their credit rating, qualifying them for a lower interest loan.
