Self-employed individuals work on a contractual basis and don’t receive a fixed salary at the end of the month like most of us. When you’re applying for a personal loan as a self-employed person, you have to make sure that you’ve filed your income tax returns on time.
Most banks give out a personal loan for self-employed individuals running their own business for a stipulated period of time. The best part about these loans is that you don’t require any collateral and the repayment tenure is flexible, ranging from anywhere between 12 to 60 months.
Other Factors To Consider
When you’re applying for a personal loan as a self-employed individual for the first time through a bank or NBFC, here are a few other factors you want to consider:
- Annual Receipts of Gross Income – Banks and NBFCs require gross annual income receipts for accounting reasons. A majority of banks give out personal loans for self-employed individuals as long as they have a minimum Gross Annual Income of INR 5 lacs. However, some organisations require a GAR of between INR 10 lacs to INR 15 lacs for unsecured personal loans, which is why it’s important to check with the institution before applying.
- Bank Statements – Your bank statements should demonstrate proof of stable income spanning up to 6 months. This will be evaluated to check your repayment capacity for the borrowed amount. Inbound and outbound cheque bounces will also be used when going through your transaction history to run a check on your financial reliability.
- CIBIL Score – As a self-employed person, banks and NBFCs will ask for your CIBIL score before lending you money. Some corporations want the CIBIL score of the business firms they’re working with besides self-employed individuals to analyse the credit repayment record. Having a high CIBIL score greatly increases the likelihood of you getting unsecured personal loans for business and other purposes.
- Age Limit – Most banks are willing to give personal loans to individuals who are 25 years or older. The age limit for unsecured loans can go up to 65 years by the time of maturity, however, some organisations are relaxing this criterion. They are giving borrowers as young as 23 years old the option to apply for such loans as long as they have proof of income and a good financial history.
What Can You Get With A Personal Loan?
A personal loan will help you meet unexpected business expenses when you’re first starting out. You may have to upgrade your office equipment, buy new materials, or get a better workspace. Other expenses like paying your employees, shipping fees, transportation costs, and renovation projects require additional funding which can be met through these loans.
If you’re planning to buy new gadgets, entertainment systems or simply are in a cash crunch due to medical emergencies, these loans can help you out. The best part about these unsecured loans is that you don’t need to give the financial institution an explanation on what you need the money for. As long as you make repayments on time and keep a decent credit utilisation ratio, your credit history will build up, thus resulting in solid financial standing with companies.
Sometimes you just want to take a break from work and go on mini-vacations. These loans can be used for those reasons too. You can apply for gold loans if you have a bad credit history since banks and NBFCs give these out without any financial documents or CIBIL scores to self-employed individuals. You can reach out to the bank or institution to request for an increase in credit limit next time after you clear any past settlements and raise your CIBIL Score.
How To Apply For A Personal Loan If You’re Self-Employed
In order to apply for a personal loan as a self-employed individual, you will need the following documents –
- KYC Documents (proof of identity and address)
- Office registration papers
- Proof of income and ITR returns documentation
- Bank statements
Financial institutions will require you to show that you’ve been having a stable income as a self-employed individual. If your business has been turning profits and you haven’t been running out of projects, you will be on good terms with them. The application process can take anywhere between 3 to 5 business days, depending on which institution you’re applying through, with the entire process being completely paperless.
If you’re applying for multiple personal loans through the same organisation and have built a good credit history with them, the loan disbursal window can be reduced to just a few hours for upcoming transactions. You’ll also enjoy various benefits such as exclusive loan offers, reduced interest rates, and the chance to earn through referral programs once you become a valuable customer.
What Are The Interest Rates Like?
Interest rates for personal loans can vary between 16% to 25% if you’re self-employed. The deciding criteria used to determine these rates is your age, income status, location of residence, employment type, repayment capacity, loan tenure, and CIBIL Score. Your CIBIL Score is a great indicator of your financial standing as a borrower.
It is important that you have a high CIBIL score of at least 750 or more prior to applying. If you don’t have a CIBIL Score, it means you lack a credit history. The good news is that taking personal loans can be a great way to build a good credit history over a period of time. All you have to do is make sure you do timely repayments and utilise your credit line as needed, instead of maxing out on it. You can opt for SMS reminders to stay on track with your EMI repayments when applying for a personal loan through Stashfin.
Starting a business is hard and if you’re just getting used to the freelancing lifestyle or are new to self-employment, you may find yourself enjoying an advantage when you have a secure line of credit. A personal loan is risk-free since you don’t have to put up any collateral, plus the amounts you can borrow can be good for starting rates.
You can get Payback Rewards for these loans whenever you make repayments on time. Online EMI Calculators can be used to figure out what your repayment tenure and interest rates will be like for these types of loans. Overall, if you’re in a cash crunch or simply require additional spending money for running your business, a personal loan can be a great way to fill in those financial gaps.