If you need funds for home improvements, vehicle maintenance, debt consolidation, or other expenses, a personal loan may be a perfect option. However, being self-employed will make qualifying for a loan more difficult – you don’t get W-2s or salary stubs from your workplace, proving you make enough money to make monthly repayments.
Fortunately, you can qualify for self-employed loans. Here is everything you should know when applying for self-employed loans.
Check Your Credit Rating
Obtaining a personal loan with no strong credit rating can be difficult, particularly if you are self-employed. You can review your credit score online or by contacting your credit card company. When you apply for a personal loan, aim for a rating of at least 610; nevertheless, a rating of more than 720 would result in the most reduced interest rates.
You should also review your credit statement to ensure that it is error-free. Performing this early allows you lots of time to fix your possible mistakes or even find opportunities to improve your credit rating.
Collect the Necessary Documents and Information
Since your job condition is more uncommon, personal loans for the self-employed usually necessitate more paperwork. To guarantee a seamless application procedure with your lender, gather this documentation ahead of time.
Each lender has different requirements on which documentation you must submit while applying for a personal loan. However, in general, it is a smart idea to collect these documents in advance:
• 1099s
• Tax statements (tax returns, schedules, or transcripts)
• Profit & loss statement
• Bank statements
Most loan providers will need at least two years of earnings documentation to see a stable income history. The more you have been self-employed and generating a semi-consistent income (and can demonstrate it), the higher your odds of qualifying are.
Shop About and Prequalify With Several Lenders
Because loan providers’ guidelines for personal loans for the self-employed vary too greatly, it’s particularly essential to shop around. Before filing your application, some lenders have a prequalification process that allows you to see if the lender will approve the loan and what conditions you can qualify for. After prequalifying, ensure you perform a soft credit review to safeguard your credit rating.
Select a Lender Who Matches Your Needs
Once you’ve prequalified with several lenders, you should compare the rates and conditions available to you. This procedure helps you to select the right loan for your particular case.
The majority of people opt for the lowest possible rate, and there is nothing wrong with that. However, depending on your circumstance, you might still want to weigh other considerations, such as
• Lender reviews and ratings
• Referrals
• Special policies (if there are any) for the self-employed
Apply In-person or Online
When you’ve decided on a lender, it’s time to apply for a loan. Depending on the lender, you can either apply in person or online; in certain situations, you will need to contact them to complete the application. Your lender will request personal and company income documentation, which you should have available.
Wait For Approval
The loan provider will check your records to determine whether or not you are eligible for the loan. The time required to complete this task varies. In certain circumstances, you will obtain a decision almost immediately; but, since you are self-employed, the provider will conduct further due diligence, which can cause approval to be delayed. In certain cases, a decision can take several days or even weeks.
If you are looking for a personal loan and are self-employed, the first approach is to look at your finances to see whether you can afford the monthly loan repayments — you wouldn’t want to qualify for the loan just to find out you’re way over your head. Proceed and compare loan options from various lenders. Shopping around with different lenders will help you discover a loan with the best terms and fees.