Being self-employed comes with many perks, like being your own boss, setting your own hours, and having the freedom to work on projects you enjoy. However, it also comes with some unique financial challenges. One of those is accessing credit when you need it.
Traditional lending companies often make it difficult for self-employed individuals to qualify for loans. This is because they view self-employed applicants as higher risk since their income tends to fluctuate.
Fortunately, there are loan providers that specialise in providing personal loans for the self-employed. Personal loans can provide access to financing for major expenses like home renovations, medical bills, or starting or building a business.
In this guide, we’ll walk you through everything self-employed individuals need to know about qualifying for and getting a personal loan.
Personal Loan for Self-Employed: Eligibility Criteria
Financial institutions have certain eligibility criteria borrowers need to meet to qualify for a personal loan. Here are some of the common requirements for self-employed applicants:
- Minimum age: Most lending companies require applicants to be at least 21 years old. Some may have a higher minimum age of 25 or 30 years.
- Income: Financial institutions will want to see stable self-employment income over the last 2-3 years. Many have a minimum annual income requirement of ₹2 lakhs.
- Credit score: A credit score of 750* or higher is ideal. Many loan providers will approve applicants with scores above 625*.
- Residence: You need to be an Indian citizen and resident. Some loan companies require a minimum of 2-3 years of residency.
- Business longevity: Lending institutions often want to see that you’ve been self-employed for 2-3 years minimum. Some require 5+ years in business to qualify.
As long as you meet the financial institution’s eligibility criteria, you can qualify for a personal loan as a self-employed individual. Having supporting documents ready will help strengthen your application.
Documents Required for Personal Loan for Self-Employed
When applying for a personal loan as a self-employed individual, you must submit documents verifying your identity, residence, income, and business longevity.
Here are some of the documents lenders may require:
- PAN Card
- Aadhaar Card
- Current utility bill or bank statement showing your address
- Financial statements for the last 2-3 years
- ITRs for the same period
- Bank statements for 6-12 months
- Proof of business registration/li>
- Business licence or registration documents
- GST certificate
The more documentation you can provide to substantiate your eligibility, the higher your chances of approval. Maintaining meticulous financial records and filing taxes on time will work in your favour.
Interest Rates and Repayment Terms
Interest rates and repayment terms for personal loans for the self-employed generally align with conventional personal loans. However, some lending companies may charge a slightly higher rate due to the higher-risk nature of self-employed applicants.
- Interest rates: Personal loan rates currently range from 10% p.a. to 40% p.a. Your individual rate will depend on eligibility criteria like income, credit score, and existing debt. Those with the best profiles qualify for the lowest rates.
- Loan repayment term: Repayment terms can range from 1 year to 5 years. Opting for a shorter tenure result in higher EMI amounts but less interest paid over the life of the loan. Longer terms have lower EMIs but higher total interest costs.
Before applying, use the Shriram Finance Personal Loan EMI Calculator to determine an affordable monthly payment. An EMI amount that fits comfortably within your budget will assure timely repayment and help build your credit profile.
Personal Loan for Self Employed: Application Process
If you meet the eligibility criteria, applying for a self-employed personal loan is straightforward. Follow these steps:
- Check your credit report: First, get a free copy of your credit report so you know your score and can identify any errors needing correction pre-application.
- Research lending companies: Compare the offerings, interest rates, eligibility criteria, and application process of top personal loan providers. Look for financial institutions accommodating self-employed applicants.
- Collect required documents: Have all of the needed eligibility and income verification documents ready to submit with your application.
- Start the application: Apply online or visit your nearest branch of the bank or NBFC. Ensure all data and submitted documents are accurate.
- Get loan approval: The loan provider will inform you once they complete underwriting and verify your details. This may take 2-7 days.
- Accept the offer & get funds: Finally, review the loan agreement thoroughly. Once you accept, the lending company will disburse the approved loan amount directly into your bank account.
With the right financial institution, getting a personal loan as a self-employed individual is achievable.
The Bottom Line
While getting a personal loan as a self-employed individual presents some unique challenges, it is certainly possible with the right financial institution. Those able to meet eligibility criteria and submit proper financial documents can unlock access to financing that may not be available through traditional channels.
FAQs
How much personal loan can a self-employed get?
Loan amounts can range from ₹50,000 to ₹20 lakhs or more based on your income, credit score, existing debt, and the lending institution’s policy. Higher incomes and credit scores qualify for bigger loan amounts.
Can I get a personal loan with a low credit score if I'm self-employed?
It's challenging to get a personal loan if your credit score is below 650*. However, some lending companies may offer personal loan with a lower credit but at a slightly higher interest rate and terms. You can also improve your chances by opting for a secured loan, adding a co-signer, or providing collateral/security.
What documents do I need to apply for a personal loan as a self-employed person?
You'll typically need identity proof, residence proof, financial statements, ITRs, bank statements, business registration proof, and GST documents. Having 2-3 years of tax returns and audited statements will strengthen your application.
What is the easiest way to repay my personal loan?
The easiest way is to set up auto-debit from your bank account on the loan due date, so the EMI is paid on time without you having to remember it. This prevents any penalties due to late payments.
