Personal loans may be difficult to acquire and even more so when you are a self-employed individual without records of formal earnings. Conventional lenders tend to examine evidence of steady income to determine your ability to repay the loan.
However, although self-employed individuals might have multiple ways of bringing in revenue, they might lack regular payslips or salary statements.
What then can you do and increase your chances of getting a personal loan without income statements, as far as self-employed individuals are concerned? These are five effective tips to help you access a personal loan without income proof, at the same time demonstrating that you are trustworthy with money.
1. Keep Your Credit Score High
Your credit score is a three-digit number that shows how likely you are to pay back a loan. It normally falls between 300 and 900. A good credit score is very important for getting personal loans, especially for self-employed people who don’t have proof of income.
A credit score of 750 or higher is good for lenders. A good score shows that you are responsible with your money and makes it more likely that you will get a loan. Here are some important things that can help your credit score:
Records of On-Time Payments: Paying your credit card bills or loan EMIs on time shows that you can be trusted as a borrower.
Credit Utilization Ratio (CUR): A CUR of less than 30% shows that you are spending wisely and not relying too much on borrowed money.
Debt Management: Don’t let your debts get too big. A small loan that you pay back can help your score, but too much debt makes you less creditworthy.
Don’t Apply for Loans Too Often: Lenders may see you as desperate if you apply for loans several times in a short period, which could affect your score.
Check your credit report often for mistakes, because mistakes can hurt your score unfairly. If you see any mistakes, let someone know right away so they can fix them.
2. Use a Co-signer or Guarantor
When self-employed people apply for loans without proof of income, having a co-applicant or guarantor can make a big difference.
The guarantor’s job is to make sure that the lender gets paid back even if the main borrower doesn’t.
What the co-applicant does: A co-applicant, like a family member or business partner, is also responsible for paying back the loan, and their income is taken into account when deciding if they are eligible.
Lenders are more likely to approve your loan application if you and someone else are responsible for the money.
3. Capitalise on an Existing Relationship with the Lender
If you already have a relationship with a lender, whether through savings accounts, fixed deposits, or previous loans, it can help you.
Lenders are more willing to trust someone they already know. If you have a good relationship with the lender, you might even get better terms, including lower interest rates or more money to borrow. When applying for a personal loan for self-employed people, make sure to mention that you have a good history with a bank or lender.
Even if you can’t show proof of income, showing that you can be trusted through past encounters can help you get a loan.
4. Showcase Alternative Income Sources
You can show that you are financially stable through various sources of money, even if you don’t have typical proof of income. Self-employed people often have multiple sources of income, and showing them might help your case.
Here are several examples:
Returns on Investments: If you get dividends, capital gains, or returns from mutual funds or other financial investments, you should include these in your income records.
Rental Income: If you own property, be sure to include how much money you make from renting it out.
Profits from business: You can also use any income from your business to show that you can pay back the loan.
Lenders might see them as good signs of your ability to pay back a loan, which could help you get approved.
5. Use Bank Statements to Demonstrate that You Are a Financially Solid Person
In case you have no official records of income, it is possible instead to present your bank statement proving that you are well-to-do.
Before lenders will want to review your application, most of them require you to view 3 to 6 months’ worth of bank statements. This is how we can make the best out of them:
Ensure that there are routine transactions in your account, whether it is based on a fixed salary.
Avoid having a bad average balance in your account.
Reveal significant deposits, such as collections of the clients or revenue generated by the firm.
When money flows steadily and in large amounts into your accounts, it will assist in demonstrating your ability to repay the loan and instill greater confidence in your loan request from the lenders.
Tips to Improve Loan Eligibility
You can consider the following ideas to raise your odds of obtaining a personal loan for self-employed individuals:
Begin with a low amount of loan. In case you can demonstrate that you can repay your loans on time, you might be able to take larger loans in the future.
Don’t borrow too much: You should only borrow money if you can pay it back. Spending too much money might affect your credit score and make it harder to get loans.
Get Ready with Detailed Documentation: Even if you don’t have proof of income, you should still have all the important papers, such as proof of identity, business registration, GST reports, or any other proof that shows you are financially reliable.
Last Thoughts
Getting a personal loan without income proof could seem hard, but it’s possible if you know what to do. You can greatly enhance your chances by focusing on developing a good credit profile, using your current relationships, showing other sources of income, and looking into flexible lenders.
As an example, fintech companies such as Stashfin offer custom products to self-employed people who might not have formalized income reporting but are in moderately good financial standing. The personal lending products offered by Stashfin have been structured to suit borrowers with fluctuating incomes based on the flexibility of the credit limit, instant digital approval, and the bare minimum of paperwork. Stashfin offers lending to freelancers, gig workers, and small business owners through open terms, fast disbursals, and customized loan amounts.