Personal Loans for the Self Employed

Can you get a personal loan if you are self-employed?

The short answer is yes – but you will need to prove your income and may have to search for a lender prepared to offer personal loans to the self-employed. It is not as straightforward as for those who are paid regularly by a single employer but provided you have the paperwork and meet the requirements there are loans available.

How much can I borrow if self-employed?

As with all personal loans, the amount a lender will provide largely depends on your income and financial situation. With proof of a suitable income (every lender differs in the actual amount), good credit, and a low debt-to-income ratio you may be able to borrow any reasonable amount.

But this works both ways, the more you borrow the higher the monthly repayments will be. You need to ensure that you can comfortably afford the repayments - even on your lowest income months - and assure the lender of this, too.

What personal loan lenders offer loans for the self-employed?

There are many lenders in the marketplace prepared to offer loans to the self-employed and among the best are these 10:

• Avant
• Axos
• Best Egg
• Discover
• Lightstream
• LendingPoint
• Marcus
• Payoff
• Prosper
• SoFi

What do I need to consider before thinking about applying for a personal loan?

Here are five areas to look at if you are thinking about taking out a personal loan:

1.) Income

Lenders need to be sure you can afford the repayments and will have a minimum annual income requirement you have to meet or exceed before they will consider your application. This may be as low as $20,000 (Avant) but is often much more – SoFi requires at least $45,000. Be aware that very often lenders don’t publish the figures for minimum income.

You’ll need to be able to provide proof in the form of bank statements and tax returns that cover at least the most recent two years.

2.) Credit rating

A good credit score is an important part of securing any personal loan and that includes the self-employed. Credit scores are built from various factors including the amount of debt you currently hold, consistency of repayments, and credit history.

You may struggle to find a lender if your personal credit score is much below 560 and are more likely to need 600 and above. The higher your score, the bigger and better loan packages you will be offered.

3.) DTI (Debt to income ratio)

Your debt-to-income ratio is another factor that needs to be considered. Your DTI is a comparison of your gross income and the amount you pay to service your accumulated debt. This number, expressed as a percentage, is an indicator of how easily you will cope with the repayments. Although some lenders may be prepared to accept a figure of as much as 50% for someone who is otherwise well qualified for a loan, something like 36% or below is more likely to tick the right box.

4.) Origination fee

Loans don’t come free, and apart from the interest charged many lenders also charge an origination fee. This covers the administrative fees, credit checks, and so on, and is either added as part of the loan or collected on closing. The fee can be as low as 1% but may be as much as 8% so it may affect which lender you choose.

5.) Collateral

While some personal loans require no collateral, others want a guarantee in the form of assets so that if the borrower defaults, they can seize the asset and recoup their money. Often the collateral is your home but may be something else of value, such as a car, investments, antiques, or precious metals.