Personal Loan for Self Employed

What will you do on needing money for an emergency? You won’t beg and steal. The next best option is to borrow from friends and relatives. Let’s face it, not all relatives and friends are happy to lend. So, why stretch receiving hands? Avail a personal loan instead.

Now the question is, Can self-employed individuals avail a personal loan? Of course, they can. Self-employed borrowers own a business. You might think availing a personal loan might be difficult because you don’t earn a salary. This is just a myth.

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Personal Loan for Self-Employed

Personal loan self employed

When it comes to sanctioning loans, banks don’t differentiate between salaried and self-employed. All they really care for is the borrower’s ability to repay the loan. Some important things that vary for salaried and 

self employed personal loan

 individuals are documentation and interest rates.

What is a personal loan?

A personal loan is a short-term loan which can be availed to meet financial emergencies. These loans have a short repayment period (tenure). Personal loans are also called emergency loans. These loans can be used for any purpose.

Personal loans are sanctioned without any collateral making them unsecured loans. This is why lenders charge higher interest rates on personal loans.

Online personal loans for self-employed:

Lenders offer online personal loans. These are paperless and make the application process less complicated. You can get an online personal loan approved with just a few clicks.

Online personal loans have less human intervention and are quick, effective and simple for both the lender and the borrower. Hence, they are also called ‘instant loans’.

Personal loan features:

1. No reason loan:

A personal loan is a no reason loan. Banks don’t ask you the reason for availing a personal loan. However, there are various types of personal loans which are discussed later in the article.

2. High-cost loans:

Personal Loans are high-cost loans. They have high interest rates and short repayment tenures, which mean high EMIs.

3. Easily approved:

These loans are approved easily and often disbursed real quick.

4. No collateral:

Emergency loans are sanctioned without collateral. These are sanctioned based only on your CIBIL/credit score and creditworthiness. An ideal CIBIL score to get a loan would be 750 and above.

5. Defaults and credit score:

Default on repayment of personal loan EMIs can affect your credit score adversely.

Advantages of a paperless personal loan:

• Online personal loans are paperless, hence eco-friendly. It saves time and energy.
• Documents needed for the loan can be uploaded online.
• If all details and documents are furnished correctly, loans are disbursed as quickly as 24 hours.

  Why should I take a personal loan for self-employed?

  Self employed borrowers are the individuals who own the business. They are the sole proprietor of their business. The fact that they are not salaried does not mean that the self-employed cannot avail loans. Just like any other salaried individuals, a self employed can also avail personal loans.

  The loan amount granted to a self employed person depends on his or her repayment capacity. Different banks have various terms and conditions to provide these loans to the self employed customer. The only thing that varies for self employed customers is documentation and interest rates. Below listed are some of the reasons for taking a personal loan for self employed individuals: 

• Competitive interest rates
• No collateral required
• Transparency
• Quick processing of the loan
• Easy EMIs
• Flexible tenure
• Loan amount depends on the repayment capacity of the individual
• The loan amount can be used for any personal expenditures

  How can I use a personal loan?

A personal loan is an unsecured borrowing that can be availed from a bank or other financial institution for personal expenditures. Personal loan can be availed for various purposes. Some of them are listed below:

• To meet Emergencies like Hospital Expenses
• To cover Marriage Expenses
• Down payment for the Home
• For the purpose of Home Renovation
• To meet Travel Expenditure

Personal Loan for Self Employed with No Income Proof:

Personal loan for the self employed can also be availed without any proof of income. The loan can be availed by an individual who fails to submit any proof of income. In such a case the borrower will lend money to the individual by securing the loan through the mortgage of assets.

The individual needs to submit any document that serves as collateral for the loan. A borrower can submit property documents, fixed deposits as well as insurance policy to avail funds instantly through secure personal loan. A borrower can also avail personal loan at a lower interest rate by maintaining good relations with the lender.

Personal loan interest rates:

Personal loans come at higher interest rates and lower loan amounts as these are unsecured. Interest rates on unsecured loans can be negotiated based on the loan amount, employment status, and annual income and so on. It ranges from 13% to 24% a year.

SEE ALSO: Unsecured Loan

Personal loan tenure:

The loan tenure for personal loans is 1-5 years.

Purpose of loan:

• You can avail a personal loan to meet your or family member’s wedding expenses.
• You can avail a personal loan to meet home renovation expenses.
• You can fund a dream vacation.
• You can avail a personal loan for children’s education.
• A personal loan can be used for business expansion.
• You can use the personal loan to fund working capital needs.

Eligibility for personal loan:

Each lender has its own eligibility criteria as to the minimum income, number of years in business, age limit, documents and so on to qualify for a personal loan.  However, the most common eligibility criteria for availing a personal loan are:

• You must be an Indian resident
• You should be at least 21 years.
• You shouldn’t be more than 65 years.
• You should have been earning for a minimum of 5 years.
• You must have an Indian bank account

Documents required for self-employed to avail a personal loan:

• A duly signed personal application form
• Passport size photographs
• ID proof like passport, voters ID, PAN card
• Age proof like birth certificate, passport
• Residence proof like passport, utility bills
• Income proof like latest income tax return (ITR), computation of income, last 2 years Balance Sheet and Profit & Loss Account certified by a CA.
• Last 3 months bank statements or last 6 months updated bank passbook

How can self-employed individuals apply for an online personal loan?

1. Visit the lender bank or the NBFC’s website.

2. Select ‘apply for online personal loan’.

3. Fill out the loan application form.

4. Submit the duly filled form along with the required documents.

5. You’ll be informed on your eligibility for the loan instantly or in a short time.

6. If door-step service is available, one of the relationship managers of the bank will get in touch with you. They will fix an appointment to visit your premises to collect the requisite documents. Some banks may also offer a facility to upload your documents online.

7. The lender reviews the personal loan application form.

8. If the lender is satisfied, your loan will be approved. The funds will be deposited in the same bank account for which you give the statements.

Reasons and solution for rejections of a personal loan:

If your loan gets rejected, it may be because of:

• Debt-to-income ratio: Apply for a lower quantum of loan.
• The bank doubts your repaying ability: Apply for the loan with a co-signer or a guarantor. They will take the responsibility of repaying in case of default
• Low income or poor credit score: Furnish collateral or apply after improving your credit score.
• Too many enquiries: Refrain from applying for too many loans or credit cards.
• Delay or default in other loan repayments: Make sure to pay all EMIs and bills promptly.

Personal loans for self-employed with no proof of income:

• Are you wondering if you can avail a personal loan without income proof? If that’s your worry, fret not. Though income proof is important to avail a loan, some financial institutions sanction personal loans to self-employed individuals without income proof. In such cases, lenders require that you offer collateral against the loan. You may pledge property documents or securities.

You may try the following to avail a personal loan without documents:

• Maintain good relationship with the lender.
• Remain loyal. Consult with them for all your financial and non-financial services.
• Banks prefer if you’re main bank account is with them.
• Pay your credit card dues on time.
• Don’t miss any payments; it indicates that you lack capability on handling finances.
• Maintain a high credit score.

Difference between Taking the Personal Loan from Banks and NBFCs for Self Employed:

Nowadays, many banks and non banking financial institutions provide flexible personal loans to self-employed individuals. But before availing these types of loans, you must know the difference between the two lending institutes. Banks and NBFCs are both financial institutes with loan providing capacity. However, banks have very strict rules and regulations that one must abide. There are different parameters on which banks rank their borrowers before lending money - the interest rates levied and the disbursal of the loans by the banks depends on the CIBIL score of the borrower. On the other hand, NBFCs are more lenient with the terms and conditions in providing the personal loan. But compared to banks, the NBFCs charge a higher rate of interest on the amount borrowed.

Factors Affecting Self Employed Personal Loan Rates:

There are various factors on which the rate of interest of personal loans depends. Listed below are a few:

1. Types of business: banks provide loans at a lower interest rate to business and manufacturing units that have a regular income. So, all the manufacturing units and businesses that have good annual turnover get better interest rate on the personal loan.
2. Special rates to self employed professionals: banks more likely fund professionals like doctors/engineers/C.A and architects. Banks believe that these sets of customers very rarely default and hence they get better rates than others.
3. Annual income tax returns: if any individual has high income and owns a large company, then lower rates of interest are offered by the banks. 

Things to Look in Personal Loan with Different Banks for Self-Employed:

1. Turnaround time check: check on the time that a bank takes for the processing and disbursing of the loan. Check and compare thoroughly, as different banks have different disbursal periods.
2. Rate of interest: always compare the different banks for the rates of interest. Also carefully go through the hidden costs and charges and choose the one that suits your needs.
3. Monthly EMIs- compare the monthly EMIs of different bank for the same amount of loan.
4. Processing fee- it is the fee that is deducted on the amount of loan disbursed. It is a onetime fee. Usually the fee ranges from 1.50%-2%.
5. Time taken for approval- the time taken for the banks to approve a loan is 2-3 days.
6.  Loan tenure: look for the tenure offered by the bank for the repayment of the loan.

FAQ

How can I apply for a personal loan for self-employed?

You can opt to apply for the personal loan through online as well as offline methods. The different processes through which you can fill the application for personal loan are:

• Visit the branch
• Online application
• Through e- mail
• Over the phone

What is the eligibility for a personal loan for self-employed?

• The applicant should be a Resident of India.
• The applicant should be of the age of 21 years at the time of application
• The minimum turnover or profit of the applicant should be as per lender’s requirements.
• The minimum work experience in the current business is at least 3 years.

What documents do I need to apply for a personal loan?

Below listed are the documents needed to apply for the loan:

• Passport size photograph.
• Proof of ID – Passport/ Voter ID/ PAN Card
• Proof of age – Birth certificate/ passport
• Proof of residence – Passport/ Utility bill.
• Bank statement of past 3 months
• Proof of income- IT returns statement / Last 2 year’s balance sheet/ profit and loss statement certified by a CA.

How soon can I receive funds from a personal loan?

For offline process, Personal Loan approval usually takes 72 hours and disbursal time taken is 5 working days subject to documents and other verification. But, if you are going with the Online Personal Loan, the application approval may take 1 to 2 hours and disbursal is done within 2 working days.

Do I need to provide security or collateral?

To avail personal loan, you do not need to provide any collateral or security. However, if you are availing the loan without an income proof, then you need to provide some documents/assets as collateral to avail the loan.

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