The self-employed can find they have to jump through a few more hoops when it comes to securing a personal loan. The good news is there are plenty of lenders out there that will happily lend to the self-employed, but it may require a little more work on your behalf to prove that you’re in the best financial shape.
So, what are the steps you should take when securing a competitively priced self-employed personal loan? Here’s our guide…
1. Organise your finances and prepare the documents lenders will expect to see
Rather than just looking at your last few payslips to ascertain your income, if you’re self-employed, the process becomes more difficult. You’re likely to have an income that fluctuates from month to month and comes from several different sources. That could be in the form of payments from clients, rental payments from tenants, shares and other investments. Lenders will also want to see proof of savings, whether you have money held in an ISA, a term deposit or funds held in a bank account.
To increase your chance of being approved for a loan, you should prepare all the necessary documents to prove your earnings, your savings and your expenditure. Most lenders will expect to see:
- Proof of ID – Your driver’s licence or passport
- Proof of address – A utility bill or council tax bill will usually be acceptable
- Tax returns (SA302) – Print out copies of your SA302 calculation for the last two years
- Bank statements – Lenders will usually ask for bank statements for the last 3 months to corroborate your SA302 calculation and to get a better understanding of your outgoings
- Proof of rental income – Bank statements and tenancy agreements will need to be provided as proof of rental income
- Company/business information – This should include the status of the business and the details of anyone else with a financial interest in it
2. Plan your repayments during the loan period
The nature of self-employment means that downturns in the amount of work you do and income you generate can occur, which could cause problems when it comes to making your loan repayments. Looking for lenders that allow flexible repayments will help to mitigate that risk.
You should also plan ahead and ensure that you have enough work coming in over the short- to mid-term to make the repayments comfortably and meet your existing financial commitments. If your income can shift dramatically and unexpectedly from one month to the next, choosing a loan that allows you to take repayment holiday periods when your revenue is low will provide additional protection.
3. Choose the right lender
If you’re in a financially stable position, then there’s likely to be no shortage of prospective lenders. Even mainstream lenders like Wonga state that they will not decline a loan application simply because someone is self-employed. When you’re choosing a lender, you should consider:
- What documentation you’ll need to be accepted for a self-employed personal loan and whether you can provide it.
- The flexibility lenders offer in terms of repayment periods, payment holidays, drawdowns and recognising alternative sources of income.
- Whether the lender offers fixed or variable rates on their loans.
Have you managed to secure a competitive self-employed personal loan? Was there any part of the application process you hadn’t expected? Please share your experiences with our readers in the comments below.