Personal loans are available for both Salaried and Self Employed Individuals. The usage of Personal loans is not restricted to a specific purpose. Self-employed individuals can get funds in their bank account quickly. They can use the funds for any purpose, be it a personal need like getting funds for marriage, home renovation or for a business need to purchase equipment, manage working capital etc.
Who are classified as Self-employed Individuals?
Unlike Salaried individuals who get a fixed salary, Self-employed individuals have their own business and do not get a fixed monthly salary. Among Self-employed individuals, individuals who offer professional services like doctors, architects, chartered accountant etc. are classified as self-employed professional while there are other individuals who run their business setup.
Personal Loans eligibility criteria for self-employed Individuals
- Anyone in the age group of 21 years to 65 years is eligible to apply for a Personal loan
- Good Credit score, preferable 650 and above is needed
- Self-employed individual should have a certain minimum monthly income
- The current business or practice should have been running for at least two years
- Self-employed individuals should have filed ITR for last 2 years
Following factors affect the eligibility of personal loans for Self Employed Individuals
Credit history: Credit score is an important parameter to determine the creditworthiness of a person. As self-employed individuals do not have a fixed source of income, their credit repayment history becomes an indicator of their financials. Self-employed individuals with a good credit score will have good chances of getting personal loan quickly without much hassle.
Business Stability: Years in business is another checkpoint to determine the personal loan eligibility of a self-employed individual. Banks or NBFC require the business to be operational for at least 2 years in most cases while some banks may insist for 5 years as well. Banks and NBFC usually want to assess the stability of the firm in addition to understanding the credit worthiness of the self-employed individual.
ITR – The personal loan application for a self-employed person requires ITR of last 2 years and in some cases ITR of last 3 years to be submitted with the application form. Proof of Income is an important factor for banks and NBFCs to determine the eligibility of a self-employed person.
Income: A minimum monthly income is required to be eligible for a personal loan. Criteria for each Bank and NBFC is different, however at least monthly income of more than Rs. 25,000 is desired.
Age: You need to be at least 21 years of age to apply for a personal loan, however the age criteria might different from bank to bank. 6. Association with Bank: Self-employed people applying for a personal loan through a specific bank should be the account holder of the bank for more than a year. Banks and NBFCs check the banking history of the individual based on minimum 6 month bank statement. Banks use the account statement to understand the average monthly account balance and financial stability.
Other Factors to be considered: In addition to credit score and bank statements and ITR certain other factors are also considered like property ownership. A borrower living in owned house would have a better chance of getting the personal loan approved than another self-employed person living in a rented house. Similarly a person with owned office would have a better chance of getting the personal loan approved than a person with rental office.
Personal Loans for Self Employed With Bad Credit Score
People with low credit score are a high risk category for Banks. For such individuals with a low CIBIL score getting an unsecured loan is difficult as Banks classify them under category of people who have a high probability to default on loans.
The best alternative for self-employed people having bad credit score is to apply for a secured loan or apply a loan with NBFCs.
- Mortgage loans- Such loans can be availed by self-employed individuals at attractive interest rates. Banks would approve such loan even with a low credit score.
- Gold Loans – Self-employed people with low credit score can get instant money with a gold loan. As no financial documents are required such loans are also an attractive option for people who lack financial documents
- Approach a NBFC – Self-employed professionals with a bad credit score can also apply with a NBFC. Many NBFC would extend loans to people with slightly low credit score; however guarantees and collateral are taken into consideration. Interest rates for such loans are usually higher as the risk is also higher for the NBFC