What You Need To Know About Taking Out A Personal Loan If You're Self-Employed

Personal loans can be used to pay for personal needs like utility bills and groceries or even significant expenses like debt consolidation. In general, personal loans are pretty simple to obtain because you don't need a lot of documents to avail one. You only need residential proof, a few months' paychecks, and proof of employment. If you have all of them, you're all set to get the money you need.But when you are self-employed, you may need to go through hoops to secure a personal loan and prove you can pay it. While the application process might be more complicated, it doesn't mean it's impossible. 

Personal Loans For The Self-Employed

A personal loan for a freelancer can take different forms. For example, it can cover business expenses and still be considered a personal loan. Here's a rundown of a few types of personal loans for self-employed individuals.

Online Lenders

Most online lenders tend to work with self-employed individuals. As such, it shouldn't be too hard to get a lending company you can trust. Be sure to evaluate your good reasons to get a loan and look for a lender that provides immediate financial support quickly and safely.  Apply for a loan that suits your credit score to get the best rates available.

Business Credit Cards

If you need cash immediately, business credit cards can help you. A business card credit allows borrowers to get money to cover a business expense. On top of that, applying for one will help you build your business credit so that, in the future, you can sign up for larger loans. You'd need to provide your business details, like employer ID, estimated monthly expenses, and legal structure.

Credit Cards

If you have a good credit score, credit cards are an excellent way to borrow a small amount of money. You can take out small amounts up to the maximum limit. Plus, you can repay the balance each month to avoid hefty interests. 

Guarantor Loan

This type of loan is easier and more convenient to get, unlike other financing options. You'll need a relative or a friend who will financially back you up and will promise to pay the loan if you default. Before applying for this loan, make sure to assess its implications on the credit score and finances of the party involved. 

Payday Loans

Payday loans are developed to help borrowers in dire financial situations. However, they aren't a long-term financial solution. Generally, payday loans must be paid off during the next pay cycle and usually range between $100 to $500. 

How To Apply For A Personal Loan When You're Self-Employed

Self-employed individuals may qualify for a personal loan. However, it might require more work than usual. To start your loan application, you'll need to prove your identity first. You can do that by presenting a valid ID like a passport or driver's license.

Next, you'll need to verify your income. Generally, full-time employees provide past two years' W2s to prove their income. But self-employed individuals don't get W2s for their job. You can use some other documentation like bank statements, Schedule SE, income tax returns, and 1099s. Additionally, you should save previous years' forms because most lenders request at least two years of documentation for self-employed individuals. Contracts for multiple clients are also helpful to prove your income. You may also need to show a strong credit history. Keep in mind that credit is one of the most convincing markers of financial competency. 

How To Boost Your Chances Of Getting A Personal Loan

Your credit history and income aren't the only details lenders use to confirm your eligibility for a loan. As a self-employed applicant, you can take steps to make your loan application more attractive to lenders. Many lenders search for an emergency fund or healthy savings from self-employed borrowers. If the applicant can't show sufficient income to pay for the loan, their savings can act as a backup plan.

You must keep your debts small to even out some of the risks lenders take. Another thing lenders like to see in your application is a stable career path, specifically at least two years.

Conclusion

If you are considering a personal loan and are self-employed, you need to check your budget to find out what you can afford to spend on a monthly loan payment. You wouldn't want to get approved for a personal loan and discover that you can't manage to pay it. The next step is to compare options from various lenders, including credit unions, online lenders, and banks. By doing so, you can find a loan with the most competitive fees and terms.