Types Of Loans For Uber Drivers Are Eligible For [& Risks Of Taking One Out]

Understanding the Uber Driver as a 1099 Contractor

The most important aspect to understand about driving for Uber is that Uber drivers aren’t employees. Instead, Uber qualifies all rideshare drivers as independent contractors.

Accordingly, Not only do Uber drivers not receive benefits like unemployment, but there’s also no solid income verification for them.

This is crucial when it comes to filing for taxes. Uber doesn’t deduct taxes from your income but still tallies your earnings.

Uber driver-partners receive two distinct tax forms, Forms 1099, hence their nickname as 1099 contractors.

These forms include all the drivers’ earnings, including rides, tips, commission, and referral bonuses.

You might find the figure higher than what your earnings actually are, but you can report the extra amount as business expenses.

Uber will freely provide you with these forms if you’ve completed over 200 rides, and if your income is over $20,000. However, this figure varies from state to state.

After requesting these forms from Uber, you can file them to the IRS to report your rideshare income. Yet, Uber will most likely submit these forms automatically.

This income verification isn’t essential for filing taxes only, but it can also qualify as documentation of steady income when applying for loans.

Types of Loans Available for Uber Drivers

Since leasing from Uber is of the past, Uber drivers now need to finance their cars and other expenses through more traditional methods.

Unfortunately, Uber drivers might have a hard time applying for a loan, especially since they have a somewhat limited income, as well as needing to verify their source of income.

To make matters easier, here are some of the most common types of loans Uber drivers can apply for:

1. Personal Loans

Your first option if you need some extra cash would be to apply for a personal loan. These loans have the best interest rates and the most flexible terms.

However, personal loans can be secured or unsecured. Secured loans are easy to obtain, but they need some type of collateral, such as liquid assets or your car.

In contrast, you need to demonstrate a stable income and an exceptional credit score to get approved for an unsecured loan. Yet, you won’t have to put down any collateral.

2. Private Auto Loans

Private auto loans work like bank auto loans, only your lender would be the auto shop. These can be helpful if you need to get a car for Uber as the shop can provide personalized loan offers.

Financing a car through a dealership might have better rates as well as ease the requirements. They might even allow you to swap a car lease. Still, this shouldn’t be your first option, as banks are generally safer.

3. Payday Loans

Payday loans are short-term loans with a relatively high-interest rate. The reason these loans are so popular is that they grant you instant access to cash.

You can get a portion of your next paycheck as a loan, then pay it back in 30 days or less, with interest.

While anyone can get approved for these loans, as long as they have proof of income, the loans aren’t available in 16 states as the high fees can’t be properly regulated.

4. SBA Loans

The Small Business Association has created many loan programs to help small businesses, including independent gig workers.

These types of loans are one of the best for rideshare drivers, as the SBA has lenient requirements, and regularly supports small businesses in times of need.

Eligibility Criteria for Uber Driver Loans

Each loan provider has their set of eligibility criteria. So, if you get rejected for a loan at a certain bank, you can still try your luck somewhere else.

Keep in mind that loans with higher interest rates have fewer criteria, which means you can still get a loan even with a bad credit score. Though, you’ll be paying more in the long run.

Typically, lenders inspect the following before approving your loan application:

• Credit score
• Debt-to-income ratio
• Steady Income
• Collateral

Applying for a Loan: a Step-by-Step Guide

Applying for a loan is straightforward, as long as you know what to expect. So, here’s a walkthrough on applying for a loan:

Step 1: Assessing Your Finances

A successful loan application depends on two factors.

First, you need to carefully assess your financial situation. Do you already have debts that you’re struggling to pay?

Can you manage to regularly pay back the loan? And is getting a loan a better solution than slowly saving up cash?

Second, you need to prepare ahead. If you’ll pay back the loan over five years, it’s crucial to have a stable income to cover the repayments.

Step 2: Preparing the Documents

If you ultimately decide on getting a loan, you should prepare all the necessary documents.

Fortunately, you can use your bank statements or your 1099 forms as proof of income. Paired with a valid social security number, you’ll be good to go.

Step 3: Deciding on a Loan

Lastly, you’ll need to decide on the type of loan you want to apply for. This depends on how much you can pay in interest and the amount of cash you need.

The loan terms must also be compatible with your conditions. It makes no sense to put your car down as collateral when it’s your main source of income as an Uber driver.

Instead, it would be better to apply for an unsecured loan.

Interest Rates and Repayment Terms For Uber Driver Loans

The interest rates are the fees the lenders charge you for the loan. It’s a percentage of the total loan, noted on an annual basis.

This rate generally depends on the risk you pose to the lender. Someone with a good credit history, a steady cash flow, and a stable job would be considered low-risk, as the bank would guarantee that the borrower will repay the loan at the appropriate time.

High-risk borrowers are those with a high debt-to-income ratio, no steady income, and no collateral. The high-interest rate acts as insurance for the lender, helping them recoup their loss in case of partial repayment.

As for the repayment term, the longer the loan term, the less you’ll have to pay monthly. However, you’ll also pay interest for longer, making for a larger sum overall.

Risk and Considerations of Taking On a Loan as an Uber Driver

Before applying for a loan, you should understand the following:

1. High-risk loans

You might find some loan options easier to obtain, especially payday loans and loans with collateral. However, keep in mind that these loans involve significantly high risk.

For example, you might lose money in the long run, or face severe consequences in case of a late loan payment.

2. Irregular pay

Since Uber drivers receive different earnings every day, predicting how much they’re able to pay at the end of each month is nearly impossible. For this reason, it’s best to consider smaller loans that you’re sure you’ll be able to pay.

3. Damaging your credit score

Getting a loan increases your debt-to-income ratio. This means you’ll find it harder to get approved for future loans. So, if you don’t need the initial loan, it’s best to hold off on it and find other ways to save money.

4. Seek legal advice

There’s more to loans than repayments and interest rates. Each lender has their unique terms and conditions. So, seeking legal help and reading the fine print is crucial.

Alternative Financing Options

If you’re ineligible for a loan, or you find loans too risky, there are other forms of financing available for Uber drivers, including:

• Crowdfunding: Your community can pull through by helping your crowdfunding campaign and raising money to help you achieve your dreams.
• Peer-to-peer lending: If you’re unable to qualify for a traditional loan, peer-to-peer platforms can take a chance on you. This allows multiple lenders to offer you a partial amount of your loan. Unfortunately, the fees are usually high.
• Credit cards: Credit cards allow you to borrow cash and pay it off the following month. This can be an ideal option as an emergency fund, or if you only require an advance on your next paycheck.

Financial Management Tips for Uber Drivers

Working as a rideshare driver might give you ultimate flexibility and freedom, but managing your finances can’t be easy.

So, here are a couple of tips that might help you save up some money, or set a budget to repay your loan:

• Work for different platforms.
• Make the most out of your time by driving during peak hours.
• Be friendly to passengers to warm extra tips.
• Create a budget for your rideshare business.
• Record your business expenses for the IRS to benefit from tax returns.
• Drive for Uber as a side hustle, but keep pursuing a steady income.
• Opt for weekly payouts to accurately follow a budget.

Resources and Support for Uber Drivers

There are numerous financial services available that cater to independent contractors, like Uber drivers.

For example, Giggle Finance has specific loan programs for rideshare drivers, depending on their needs. Whether you want to finance a car, maintain your vehicle, or pay expenses associated with the rideshare business, you’ll find what you require.

That’s not all. While Uber classifies their drivers as 1099 contractors, they still offer the drivers some benefits.

Uber has partnered with car dealerships, facilitating car financing and offering discounts for their drivers.

Frequently Asked Questions

Wrapping Up

Many lenders offer loans for Uber drivers since they’re independent contractors. Uber has also partnered with several car dealerships, allowing their drivers to receive discounts and car financing options.

Still, Uber drivers might face some difficulties obtaining a traditional loan, since they don’t have a steady source of income. They can use their 1099 forms as proof of income, but they’ll still be regarded as high-risk borrowers.

In this case, the only loans drivers might be eligible for are high-interest ones. So, before deciding on the loan, it’s crucial to assess your financial situation, set a budget, and seek legal advice.