Self-employed individuals often find themselves in a unique position as far as availing personal loans is concerned. Here are some of the things you should keep in mind so as to ensure that you are in the best possible financial shape when applying for the loan-
Be organized and aware about your own finances : If you are self-employed and your income source is fluctuating, or you are reliant on different sources of revenue, carry out research to find out what alternative earnings may be acceptable to lenders. This may include the earnings accruing from shares, rentals and other investments. Also, do not miss out on showing some proof of savings, along with a good credit history. Savings, be it genuine or non-genuine can either be locked in a term deposit for more than 6 months or can be kept in your bank account. The key to support your application is to be as organized and as diligent with your financial records as you can. These documents should be present for a minimum period of 6 months. You should also make sure that the tax returns are absolutely accurate and paid on time.
Plan for future lean periods : Since self-employment is often unpredictable in nature, downturns and lulls in income are unavoidable, which in turn, can have a potential impact on loan repayments. When you are hunting for the right loan product, look for ones that allow flexible repayments, so as to minimize the chances of falling behind on repayments and risking any penalties. This will allow you the flexibility of making extra repayments during period when you have a regular income, and as a compensation for the lean spells. Self-employed customers will find it hugely beneficial to draw down on the amounts which have been repaid already. In case you have particularly precarious income levels, you can also opt for a personal loan for business person that lets you enjoy repayment breaks/holidays whenever income levels are lower.
What to check with your lender : Self-employed applicants of personal loans should choose more flexible lenders who show an understanding of an individual’s circumstances and sensitivity towards the unpredictable income pattern of the customer. As a self-employed borrower, you should look for the following things in a lender-
Whether credit approval can be done with alternative documentation.
Whether there is enough flexibility with regard to draw-downs, repayment tenors, EMI holidays and acceptance of alternative income streams.
Whether variable/fixed rates of interest are available on personal loans.
NBFCs consider some of these critical things when giving a personal loan for a self-employed individual -
Income tax returns: self-employed professionals often do not file for income tax process, which, though beneficial in short-term, will definitely deal of blow when the need for personal loan or finance arises.
Existence of the business: Your business must have been in operation for a considerable number of years. Be it a NBFC, the sustainability and reliability of a business is a major factor when it comes to granting a personal loan. Generally, your business should be at least 3 years old, though the criteria may differ according to the lending institution.
Nature of the business: some volatile and seasonal businesses fail to arouse confidence in the NBFC about your repayment capacity. Each lending institution sets different criteria as to which type of businesses they consider to be secure to deem you an eligible self-employed person to apply for a personal loan.
Your earnings (income and profits): The revenue generated by the business will be a prime point of scrutiny when a self-employed individual applies for a personal loan. Also, as a self-employed professional, your disposable income will also be taken into consideration by the lender, so as to assess your ability to repay the loan.
Always take note of the fact that false documents must never be produced, as if any fraud is revealed during the reviewing process, legal action may be taken. Also, it is very important to collect your ITRs as it will enhance your chances of securing the loan.
For any need like home renovation, marriage, education, travel, medical emergency, you can go for a personal loan for self-employed. Whereas for any business need like machinery installation or upgrade, working capital management, stock and warehouse maintenance, purchasing new plot for factory, etc. a business loan Bajaj will be the best source of capital that gives your business unsecured financing up to Rs.30 lakh within 24 hours.