Self-employed loans are financial products designed with the specific needs of those who work for themselves in mind. This includes individuals that work as independent contractors, freelancers, or who operate their own business.
Many direct payday loan and instalment lenders have provided limited, if any, access to individuals who are considered self-employed. Instead, they favoured individuals who worked for other employers. The primary reason for this preference related to the perception that those working for a traditional employer posed less of a risk than a self-employed person. Often, it is simpler for a traditional employee to provide evidence regarding their regular income by providing the lender with access to their payslips.
Self-employed persons do not always receive a consistent income for their work, and generally have varying forms of documentation that demonstrate their earning capacity. Generally, this left self-employed persons frustrated when it came to locating options for their borrowing needs.
Recently, more loan providers have become willing to work with self-employed individuals who can demonstrate a regular income. Often, specific documentation is required to show the amount of income the person has made over a designated amount of time. This provides the lender with the data they need to determine whether required affordability checks are acceptable and that the required repayment amount can be maintained for the duration of the loan’s term.
Even when the requested information is provided, a self-employed person may still be seen as a higher risk borrower when compared to a traditional employee. This additional risk could lead to higher interest rates or different repayment terms than would be offered to a similarly qualified borrower who works for an employer.
In some cases, the qualifications for approval may also be stricter than those for traditional employees, or you may have to meet additional requirements beyond the standard. For example, some self-employed loan lenders may require you to be a homeowner, have an appropriate asset to use as collateral or have a suitable guarantor who is willing to support your loan application.
The exact qualifications for a self-employed loan may vary depending on the lender with which you choose to apply. Additionally, the amount you wish to borrow and your desired repayment terms may also dictate if other qualifications must be met.
Before applying for any loan, review the requirements set forth by the lender. Guidelines are often readily available regarding preferred qualifications for the borrower. If you do not find the details you need, contact potential lenders directly regarding your questions before submitting an application. Then, you will be able to confirm whether you may qualify before going through the application process.
However, even if you appear to meet the qualifications based on these conversations, it will not be guaranteed until you submit a formal application and it is approved by the lender. Other factors, such as your credit history and credit score may disqualify you regardless of whether you meet income requirements, own a home, can provide collateral, or can provide a guarantor.