Almost at the end of my current lease with BMW but was looking for some guidance about the BMW credit app as a 1099 vs a W2. I am making double what I was as a W2 but I know there are additional concerns banks usually have when you are self-employed.
- Will being a 1099 effect how I am treated when I apply to BMWFS?
- Will I need to provide additional documentation?
Thanks in advance.
You would not need to provide documentation unless BMWFS asks for it.
On the credit application it will ask your salary and in the box next to it, it will ask if you have additional income. You can either enter the amount there or combine it with your annual income.
Self-employment income is usually ‘scrutinized’ more. I’ve heard BMWFS is more lenient than other captive lenders, especially if your credit is above par. In regards to what was said above, I would not recommend putting your 1099 income on the additional income line but instead putting all work-related income combined on the annual income line like suggested. The former can trigger app algorithms to scrutinize the additional income, as that generally implies things like alimony, child support, spousal income, or government benefits. Whether 1099 or W2, it’s still ‘employment’ or ‘work’ income, so you are fine - it’s just a good habit to get into so that your process is always streamlined.
They will likely just want to see three months of recent bank statements at the worst. Given your history with them, they probably won’t even ask for that as long as your credit is above par.
FWIW, if you are now receiving a substantial amount of 1099 income, I would recommend putting yourself on payroll for a portion to maintain your W2 and using a pass-through entity (such as an S-corp or LLC) with the rest taken as distributions so that your income can always be averaged by a lender. You will pay a lot less income tax this way and it will make your life much easier down the road with said lenders.
(I am in the credit industry but am not a CPA.)
DO NOT DO THIS. Yes, some people still do it but the IRS is cracking down HARD on people that pay themselves 10k or 20k a year and then take six figure distributions to avoid SS tax and such. Any accountant that recommends this strategy should be fired because they are setting you up to have a very big problem when you get caught.
If your credit is good, and you have little debt, you should be fine.