Taking an unanticipated situation may necessitate a loan from a financial institution. It is quite challenging for self-employed individuals to pick out a loan as it is based on creditworthiness. Here are some factors you ought to take into consideration when taking a loan if you are self-employed.
The first thing you need to do is prepare all your financial documentation before approaching any money lending institution. This is recommended as the financial institution offering the loan would need information on your financial status before the application. The lending institution requires you to provide bank statements, statements on tax compliance and The schedule C and SE documentations to access your creditworthiness. This documents act as proof of income and also guide the lender in the amount you are liable to borrow from them. It is highly recommended as a self-employed person to keep these documents as recent as possible and organized for you never know when you will need a loan.
Accessing a personal loan is still viable even if you dont have any proof of income. Your Debt to Income score and your risk ratings as are the main tools used by the financial institution you are seeking a loan from to access your credit score. Your debt to income score is obtained by dividing your monthly expenses to your monthly income. It doesnt matter if you are self-employed, with good scores from these creditworthiness assessment tools, financial institutions can give you a loan offer.
Collateral is also another way that you can use to obtain a personal loan if you are self-employed. This scenario plays our when a self-employed individual doesnt have proof of income, and they need a non-secured financial loan. Collateral can be in the form of a valuable asset such as a vehicle, a house or a piece of land. The loan facility to be obtained through collateral can be as high as three quarters the value of the asset put forth in the form of collateral. Default in payment of the loan would see the lender auction off the asset to recover the money.
Paying back the lender on the money obtained is a very important factor you need to consider. A consistent income is not guaranteed when it comes to self-employment and in this case, you ought to invest wisely for a sustainable return which can service the loan comfortably. For the installments to be paid on loan, ensure that they are spread over a favorable time scale and that they are affordable. In conclusion, as much as obtaining the loan is a challenge; you can still get it regardless of being self-employed.