A personal loan can be used for almost any purpose, from debt consolidation to starting a small business. But it can be difficult to qualify for a personal loan when you are self-employed because lenders want solid proof of income before approve a loan request.
The good news is that there are still options for self-employed people to get a personal loan. However, you may need to take additional steps first if this is your work situation.
Here’s what you need to know to get approved for a loan if you’re self-employed. You can get a head start by visiting a market like Credible to check out prequalified rates and compare personal loans and without affecting your credit score.
What information do you need to apply for a personal loan?
Although there are different types of personal loans and individual lenders have their own eligibility requirements, most financial institutions will require you to provide some key information during the application process. This may include:
- Your personal data, including your name and address
- The amount you want to borrow and your reasons for taking out the loan
- Your social security number so lenders can check your credit
- Information to verify income
- Your job details, including who your current employer is and how long you’ve been in the job
- Details of other unpaid debts, including loan balances and monthly payments
Lenders consider this information to determine if, as an independent applicant, you are a qualified borrower and to assess the risk of loan approval.
With Credible you can compare the rates and terms of personal loans from several lenders all in one place.
How do I provide proof of income when I am self-employed?
If you are self-employed, you may not have traditional financial statements like pay stubs or W-2s to provide proof of income. And you may not have a company that you work for that can verify your employment status. As a result, your lender will ask you for other proof of income. This may include:
- Two years of tax returns including your Schedule C and Schedule SE which give more information about the income and obligations of the business
- Bank statements
- 1099s of businesses that paid you in the past two years
Depending on the regularity of your income, personal lenders may not give you credit for all of the income you earned as a self-employed person. It may affect the loan amount you can borrow.
In general, the longer you have been self-employed with a stable income, the better your chances of qualifying for a personal loan when working on your own.
When it comes to purchasing a personal loan, Credible can do the heavy lifting for you. With one click, you can compare your top personal loan choices and rates without affecting your credit score..
How much should I borrow?
Whenever you apply for a personal loan, you should borrow the minimum amount you need to meet your personal financial goals. If your goal is debt consolidation, for example, borrow just enough to pay off existing credit cards or loans.
Remember, the more you borrow, the higher your monthly payments will be and the harder it will be to repay your loans. You can use a personal loan calculator to see how high your monthly payments would be with different loan balances.
Your rates also impact your payment, so visit Credible to find the best personal loan rates.
Tips for getting a personal loan
Whether you are applying for a emergency personal loan, home renovation project or for some other reason, you’ll want to take a few key steps to maximize your chances of getting your loan application approved. To do this:
- Aim to improve your credit rating paying off other debts before you apply for a personal loan, and making sure you don’t miss any payments or apply for too much new credit at once.
- Avoid changing jobs or reducing your income right before you apply for your personal loan.
- Compare personal lenders to see which one offers the best rates. Try to shop with at least three different personal lenders, as rates and terms can vary widely.
- Be pre-qualified for a personal loan before taking out the loan, so there will be no surprises in terms of the rates you are eligible for.
Credible makes it easy to compare loan options and prequalify. Visit Credible today to find the best personal loan rates and apply for a loan from a lender who is open to working with independent borrowers.