Self-employed personal loans are actually personal loans for self-employed individuals. These self-employed professionals can be business persons, shop/factory owners, or personal practitioners. Professionals like lawyers, doctors, coaching personals, etc. who practice on their own and are not in service/employment. Hence, they are known as self-employed individuals. When they borrow personal loans, it is termed personal loans for the self-employed. Personal loans are funds that one can avail of for a multitude of uses.
What is a Personal Loan?
Personal loans are loans offered to borrowers free of collateral, co-applicant, and guarantor. It is for salaried as well as business persons and self-employed individuals. Also, personal loans are not limited to be used for one specific purpose. They offer the flexibility of tenure, amount, and rates.
However, personal loans for self-employed individuals are not for salaried or employed persons. It is for all those professionals who earn their self-generated income. They either practice a profession instead of doing a job with some other employer or own their business.
Benefits of Personal Loans for Self-employed
Explained below are some of the benefits of personal loans for the self-employed-
1. Versatility & Multi-purpose Use
Personal loans are versatile as one can use them for several causes. The purpose can be ranging from home renovation to planning a wedding or bearing expenses of vacation. Unlike other loans, it has no limitation. For example, home loans, which you cannot use to buy a car or vehicle but only for home construction/purchase/extension. Similarly, you can utilize an education loan for educational payments. However, personal loans for self-employed can be put to multi-purpose uses.
Personal loans for self-employed as well as salaried persons offer the flexibility of tenure for repayment and availing of the loans. You can compare the rates of interest of different loan providers and the time duration. You can check what interest they offer as per your income and use an EMI calculator. This can help to get an estimate of your overall repayment amount after adding interest. You can also check the monthly payment you will have to make.
3. No Collateral Requirement
The major benefit of a personal loan for self-employed individuals is zero requirements of a security pledge. So, the borrower does not need any collateral for loan approval. It is because a steady source of income serves the purpose of security. The person availing of the loan needs not to pledge any asset. You also get pre-approved loans from banks where you have an existing account.
4. An Advantage over Credit Cards
Credit Cards do have their advantages. It helps to make payments when there isn’t enough money in the bank account. A credit card/CC is also beneficial in keeping up a good credit score and earning cashback. However, it also comes with high interest and compounding debt. It has a shorter repayment tenure that is of a month or else the interest is compounded up. Whereas, one can borrow personal loans for self-employed individuals at lower interest rates. As obvious, it also has higher borrowing limits than credit cards.
5. Fixed ROI
There is a fixed ROI in personal loans for self-employed individuals. In other words, this means that the rate of interest is not a variable or a floating rate. This is unlikely of the credit cards. The CC providers add up the interest in a span of a few days on the outstanding amount. But, there is a fixed monthly payment for the personal loans.
6. Easy Management
You can also consolidate several debts and credits into one loan. So, avail a personal loan for the self-employed by borrowing a lump sum. You can pay off all the other debts and small loans. Whereas, you can make monthly repayments for the personal loan. This saves you from keeping a tap on the due dates of various monthly payments. There is a chance of missing out a one or a few when you have multiple due payments. Also, you have one fixed ROI instead of varying rates and accrued interest amounts.
Eligibility for Personal Loans for Self-employed
There are a few criteria for eligibility for a personal loan facility. Every self-employed person or a business person must meet them to avail of a loan. Banking and financial institutions have the below conditions to offer a personal loan for the self-employed:
- A good credit score is important. It is because this score defines the creditworthiness of the borrower. It becomes prominent because of the lack of a collateral
- The age of individuals matters to avail of a personal loan for self-employed. The age limit is between 25 to 68. However, some banks provide personal loans to pensioners also
- Self-employed individuals must be in the profession for at least 2-3 years (preferably 5 years). Similarly, business owners should have proofs to show that their business has been running for the past 2-5 years
- Loan providers usually expect a minimum gross income of INR 5 Lakh
- Documents to show the annual turnover, profit after taxes and costs, etc. You may need ITR slips, bank accounts, and relevant papers
- All proofs of self-employment/business, address, identification, and photographs
- Existing liabilities, loans, or credit card bills
- Location and other criteria as per the policies of the lenders
How to improve Eligibility for Personal Loans for the Self-employed?
Always maintain a good CIBIL score by making timely payments. This ensures your credibility. In turn, it enhances the chance to get loans. You can maintain or improve the eligibility requirements to get personal loans for self-employed professionals. There are few things you can do to keep a good credit score and eligibility:
- Make timely payments of credit cards and EMIs. Try to make full payments
- Reduce existing debt as well as credit dependency. You can do so by making limited use of credit cards and clearing off debts quickly
- You can apply with a co-applicant if the lending institutions permit. For example, a spouse, parent, or family member. Having a co-applicant improves the chance of creditworthiness and guarantee of repayment. However, co-borrowers for personal loans are not allowed by all banks and financial institutions
Wrapping it up:
Different banks provide personal loans for self-employed at varying rates. They may also have slightly different eligibility criteria. Many banks provide self-employed personal loans to individuals with low incomes like INR 10,000-15,000 as well. Personal loans have been given as high as Rs. 50,00,000 depending on the monthly or annual income. The maximum age limit for availing of personal loans for self-employed is usually 60 years for most banks and financial institutions.
- You can show your bank statements and income tax returns. Also, you can show profit and loss statements
- If you are paid in cash, get letters from agencies or duplicate cash ledgers, invoices, tax statements, etc.