How Can Self Employed Canadians Get a Car Loan?

According to Intuit Canada, approximately 52% of Canadians will be self-employed by 2022. While self-employment offers many benefits, it does come with some downsides, particularly if you’re looking to finance a car. 

When it comes to car loan financing, banks need to balance both the risk and the reward. Consequently, they usually favor people with stable incomes, which is something most self-employed Canadians lack. However, this is only part of the problem. 

When it comes to car loans in Canada, there are three main obstacles that self-employed people face:

  • Verifying their income: Lenders need to verify a person’s income before offering them a loan. This is usually done through taxes or bank statements. As self-employed workers typically exist in a state of constant change, this can be difficult. For this reason, it’s advised that you bring your last couple of years of tax returns and a few bank statements to show what kind of income you bring in.
  • Having a High Debt-to-Income Ratio: Dealers and lenders often focus a great deal of attention on a person’s debt-to-income ratio (DTI). Given that many self-employed workers use small business loans to make ends meet, their DTI ratio is often distorted. Therefore, if you have a DTI that’s higher than 50%, lenders will likely reject you.
  • Lots of Deductions: Self-employed Canadians have access to a lot of deductions on their taxes. While this is a great advantage, overusing them can make it hard to secure car financing. This is because lenders will only look at your net income after deductions. Therefore, even if you make enough income to get approved, your loan may still get rejected.

However, all is not lost. Even with these obstacles, it’s still possible to qualify for a car loan if you’re self-employed.

How to Qualify for a Car Loan if You’re Self-Employed

  • Be Prepared To Make Your Case

As a self-employed worker, it’s possible that you may not have a steady income or that your income may get interrupted as one contract expires and you wait for a new one. For this reason, lenders will view you as a risk. Therefore, you need to prove that you’re financially prepared for occasions where your income may be interrupted in addition to regular income. To do this, you should have several of your tax returns and several bank statements to show the dealer or lender. The longer you’ve been a self-employed worker, the better you’ll be able to show your dependability. 

  • Choose a Private Lender

If you’ve met with several traditional lending institutions and haven’t been able to secure a loan, you might want to consider working with a private lender. Private lenders are a great alternative source for loans because they’re usually smaller companies and are therefore more willing to work one on one with a potential borrower to find a solution that works for both you and them. Furthermore, traditional lending companies usually use a computer to approve and reject loan applications, so if you don’t look good on paper, the possibility of being approved for a loan drops dramatically. By contrast, when you work with a private lender, you’ll actually meet with the person responsible for approving or rejecting your loan application. This will allow you to explain your situation, prove your income, and discuss how you plan on keeping your income as steady as possible.

  • Choose a Secured Loan

Secured loans are easier to be approved for because it means that if you default on your loan, your lender has something to cover the money you owe them. Banks are, therefore, more likely to issue a loan to someone self-employed if the loan is secured.

  • Get Someone to Co-Sign

A co-signer is someone who promises to pay your loan if you can’t. Therefore, having someone who is regularly employed co-sign your loan will help you to get approved.


There are no two ways about it. Getting a car loan when you’re self-employed is difficult. This is because your income likely fluctuates, you may have a high DTI, and your net income is affected by your deductions. However, there are things you can do that might increase your chances of getting approved. It will just require a bit more work than if you were regularly employed.

Author: Doug