There are moments in time when we all are in desperate need of money. A marriage in the family, a medical emergency, urgent house renovation or an unplanned trip, all of these are requirements that can’t wait. These needs coupled with needs like long standing credit card dues could mean trouble for you (oops!) At such a junction, people run around to fetch money either in order to bear new expenses or in many cases just so that they can pay off past debts.
Most of us go to our friends/family so as to take small debts but then there are amounts no family member or friend would be able to lend you. What do you do then?
One solution to all your problems “Loan”! When in times of dire financial need, take a loan. Yes, a personal loan at a reasonable rate of interest from any lender could be the solution to all your financial problems. Take it today and pay it off tomorrow! (That’s how you can make your life easier xD)
Mostly people who apply for loans are either salaried individuals or self employed. This article talks specifically about self employed individuals. So let’s begin with first explaining about them.
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Who are self employed individuals?
A person who is self-employed is the owner of a business, basically an individual who earns a living by working for himself/herself and not as an employee of someone else. It could be anyone from a freelancer to an independent business owner.
When it comes to getting a loan, people believe that it is difficult for a self employed individual to get a loan. This fact is baseless and couldn’t be further away from the truth. In reality, a self employed individual can easily obtain a loan from any bank/lender after fulfilling the necessary requirements There are two major categories of self employed people who apply for loans. The first category being those who have some proof of income while the second category is of those who have no proof of income.
In both the cases, during the application of loan a set of procedures are to be followed. Also, for both it is important to submit a certain set of documents (with/without the proof of income) in order to ensure the start of the process. Moving forward, let’s discuss in detail the two processes:
Personal loans for self employed With proof of Income
The first category of self employed people who apply for loans are those who have an income proof. The whole process of loan approval becomes much easier with a proof of income. Lenders obviously keep an eye on the source of income of their borrowers. It is a myth that it’s difficult for self employed people to get loans in comparison to salaried individuals. Lenders are more than willing to give personal loans to self employed individuals who have their required documents and other legal proofs in place.
The eligibility criteria for applying for a personal loan varies from one lender to another but there are a few basic criteria that need to be satisfied:
- The borrower should be a resident of India.
- The minimum turnover or profit of the borrower should be as per the requirement of the lender.
- The minimum age of the borrower at the time of applying for the loan should be 18 years and the maximum at the time of maturity should be 60 to 65 years.
- The annual turnover of your business/whatever work you do should be over 1 lakh.
- Should be in the same business for at least 3 years.
The documents required by the borrower for applying for a personal loan are as follows:
- The duly signed application form.
- Passport size photograph.
- Proof of age – Birth certificate/ passport
- Proof of ID – Passport/ Voter ID/ PAN Card
- Proof of income – Latest Income tax return (ITR) along with computation of income, Last 2 years Balance sheet and profit and loss certified by a CA.
- Proof of Signature verification- Passport/ PAN Card.
- Proof of residence – Passport/ Utility bill/ Allotment letter.
- Bank statement – Last 3 months bank statement/ last 6 months bank passbook.
These are the main documents required by any lender before they approve your loan. It’s important to understand that a personal loan is an all purpose loan that can be used however the borrower wishes.
Rate of interest
The rate of interest offered by the lender to you depends on a lot of factors. Your relationship with your bank is one of the most important factors in determining the rate of interest your bank offers you. A bad credit history makes the rate of interest skyrocket!
After submitting all your documents and other legal proofs of income, you have to wait for your lender to offer you a reasonable rate of interest so that you can proceed to the next steps. The average interest rates offered by most banks varies between 10.99% and 25%.
If you share a good relationship with your bank, you can even negotiate for a better rate of interest. Do keep in mind that it’s important to compare different rate of interests, offered by different lenders so that you can choose the best one as per your needs!
A few points that the lender will definitely take into consideration before determining your personal loan rates are:
Self employed professionals: Banks/Lenders are very likely to give loans to self employed professionals like Lawyers, Doctors, Engineers and CA because they believe that these people are very likely to pay their loans on time. Estimates show that these professionals rarely default. Thus, banks offer lower interest rates to these individuals.
Type of Business: You are quite lucky if you are have a healthy business. Banks are more inclined to offer lower interest rates to people who have a healthy business. So, this means the amount of interest rate you get also depends on what business you are in!
Annual tax returns: If you have a big company that has got a huge turn over, you have higher chances of getting a lower interest rate from a bank.
Process of application
There are multiple ways of applying for personal loans for self employed. With the process of digitization, the whole procedure has become much easier. The various methods of applying for a personal loan are:
Online application: The easiest way to apply for a personal loan in today’s time is to go to the website of the bank or whatever lender you are considering taking a loan from and filling out the application form.
Offline application: The second way to apply for a loan is to visit the branch of the bank you want to take the loan from and manually fill out the application form. This good old way always works!
On call: Another way to get a loan would be to get directly in touch with the bank/lender. This can be done very well over call thereby simplifying the way to the road ahead .
Let’s take for example, Mr. Shyam who is a small grocery shop owner and runs his own business. He wishes to apply for a personal loan of 7 lakhs for his daughter’s wedding. He gets in touch with different banks and lenders in order to ensure that he gets the best interest rates.
Once, the process of submitting all his personal documents along with his income proofs (Tax return or 1040 SE with Schedule C, F, or SE (for self-employment income) or book keeping records) is done, he decides to stick to the bank offering him a reasonable interest rate every year. Now, do remember that the process of applying for a loan can happen both online and offline as stated above.
Bad Credit History?
That’s okay folks! A bad credit history does mean that you will have a lower chance of fetching a low interest rate. But the good news is that banks are still ready to give you a secured personal loan that would cover all your costs. A secured personal loan is given on the basis of collateral which means that your bank does not need a good credit history in this case.
Personal loan for self employed with no proof of Income
The second category of self employed people are those who have no proof of their income. The basic requirement of a lot of lending platforms is that you need to have some kind of an income proof so that you can show them that you have enough resources at hand to pay the loan off once you have taken it.
However, in today’s time banks and lenders have moved past such barriers and are willing to give personal loans for self employed on the basis of collateral (yayy!)
These loans are called secured personal loans and are given after mortgaging the documents of the property/collateral. A borrower can obviously get a better interest rate from the lender if he/she shares a good relationship with the lender.
Another way to get a loan from a lender like Fullerton India, is to ask a friend/family/business associate to co-sign the loan application documents with you. If the co-participant has a good credit score and can furnish his/her proof of income, it becomes much easier to obtain a loan.
The last way to get a personal loan as a self employed with no proof of income is to put some gold as collateral and apply for a gold loan. Gold loans really work when you are someone who has a low credit score along with no proof of income.
These are a few ways to avail a personal loan as a self employed with no proof of income.
Now let’s explain it with an example. Mr. Ram, again a small shop owner wishes to get a loan of 7 lakhs for his daughter’s wedding. Now, he has no proof of income to furnish to the bank/lender. He decides to mortgage his small shop(or gold) along with submitting his/her personal documents. After the submission, the bank/lender offers him a loan at a reasonable rate of interest. Thus, he manages to get a personal loan as a self employed with no proof of income.
All of the points above explain how the process of obtaining a personal loan for your important(and urgent!) needs has become much more simplified in today’s time. With personal loans, it’s all about getting the money you want, at your own terms and at the time when you need it the most because we all have financial needs that can’t wait!