Decoding personal loan for self-employed individuals

life | Tuesday, February 20th, 2018
Team Asianet Newsable
Highlights
  • One of the main reasons why personal loans are quite popular among people is that it gets quickly approved.
  • If you are not getting loan approved on the required loan amount, don’t be disappointed as you can still get what you need.
  • It is a thing of the past when documentation process for personal loan or any loan for that matter used to be complex.

When it comes to meeting urgent financial needs, personal loan is an ideal borrowing option that you can look for. The loan is quite popular among people as it can be used for almost any number of reasons. Besides being flexible, the loan gets processed quickly especially if you apply for it following the online procedure.Unlike the popular belief that personal loans are only offered to salaried professionals, this flexible loan option is available even for self-employed individuals. If you are a self-employed individual and have eligibility, documentation and good credit score, you can get personal loan without any hassles. Personal loan interest rates for salaried professionals might be slightly different from what is offered to self-employed individuals but the latter still gets the well-deserved loan benefits.

Merits

Here's a list of merits for sole proprietors who avail personal loans:

  • Zero restrictions:

In personal loan, there is no restriction on how the loan amount can be used. There is ‘n’ number of reasons to apply for personal loan. Be it business expansion or buying new computer systems, banks and NBFCs (Nonbanking Financial Companies) have no issue with your reason till it is legit and does not go against their interest, i.e. to get loan amount on time.

  • Fast approval:

One of the main reasons why personal loans are quite popular among people is that it gets quickly approved. As compared to most loans, personal loans offer faster loan approvals. If the loan applicant is eligible, has all the required documents and good credit report, his/her loan application will get approved in no time.

  • Choice to use collateral:

Personal loans are unsecured loans but can also be used as secured loans. If you are not getting loan approved on the required loan amount, don’t be disappointed as you can still get what you need. Just give the sufficient amount of collateral or security to your lender and get the required loan amount from the lender.

  • Simple documentation:

It is a thing of the past when documentation process for personal loan or any loan for that matter used to be complex. Especially since online personal loan applications are now being accepted. Banks and NBFCs have made the documentation process quite simple for everyone.

  • Competitive interest rates

Banks and NBFC’s offer personal loan at competitive interest rates to eligible applicants. Depending on their credit score and other such factors, there is always a chance for self-employed individuals to get money at low personal loan interest rates.

Eligibility

To enjoy these benefits, you will first have to be eligible for it. If you are planning to apply for personal loan, here are a few criteria which you must know before applying for personal loan.

  • Age:

Since every lender has their own eligibility criteria, therefore, the minimum and maximum age criteria may differ from one lender to another. However, usually the range is from 25 to 65 years.

  • Income

Usually there is always an uncertainty attached with a business or similar practice. Therefore, banks and NBFCs keep the income requirements high for self-employed individuals. Again the income required varies from lender to lender.

  • Additional

Unlike salaried professionals, self-employed individuals do not have a fixed source of income and may have certain major expenses related to businesses. Therefore, the list of requirements for self-employed individuals is stringent and may include some additional conditions such as the applicant must be in the current business for a minimum period of years.

It is always good to know the eligibility criteria before applying for the loan. Doing so helps you prepare yourself accordingly and resultantly avoid hard enquiries as well as rejection. If you are considering personal loan offers from different lenders, you may use personal loan eligibility and personal loan EMI calculators to make an informed decision.

Documentation

Documentation is another important process of loan application which must be done carefully. Failure to present all the required documents can get your loan application rejected right away. The list of documents that may be required at the time of loan application inludes:

  • Proof of Identity (Aadhaar, Passport and Driving License)
  • Proof of Residence (Aadhaar, Voter’s ID and Driving License)
  • Address Proof of Company/Office
  • Proof of Qualification (For individuals in professions such as Doctors, Lawyers, CA, etc.)
  • Last 2 years’ income computation
  • Balance sheet
  • Last 2 years’ profit and loss statements

Note: All the above documents must be certified by a certified CA (Chartered Accountant).

  • Last 6 months’ bank statements
  • Acknowledged IT (Income Tax) return statements

Note: Any document that you submit to your lender must be proper and correct as discrepancies in the provided information can jeopardise your chances to get personal loan.

Things to Remember

Besides the eligibility criteria there are various other things that a loan applicant must always keep in his/her minds. Other pointers that must not be overlooked to ensure loan approval are as follows:

  • Credit score:

Before applying for personal loan, it is important to get your credit score checked. Doing this will save you from both hard enquiries and loan rejection. If your credit score is not up to the mark, then you will have to first improve it to get loan at competitive rates.

  • Late repayment charges:

Banks and NBFCs allow loan pre-payment only after a certain time frame. Generally that time frame is after six months. So if you want to prepay the loan amount before the specified time frame, your lender will levy some charges.

  • Processing fee:

Banks and NBFCs charge processing fee in order to recover the expenses (For example, the cost of manpower, verification, paperwork, etc.) incurred for processing the applicant’s loan request.

  • Other charges:

Besides late repayment charges or processing fees, there are various other charges that applicants must not avoid when considering loan EMIs. Some of the charges are cheque bounce, cheque swap, foreclosure, loan cancellation, EMI cycle change and others.

  • Read the fine line carefully:

Before signing the dotted line, it is always advisable to read the documents carefully. Some lenders slip-in clauses that may cause trouble in future. If you are unable to understand the clauses, it is advisable to get a financial advisor to take a look at the agreement before you sign the documents.

This post has been contributed by Paisabazaar.com.

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