Situations do arise prompting the taking of loans from financial institutions. Loan issuance is based on creditworthiness which makes it challenging for self-employed individuals to access them. If you are self-employed, here are some guiding tips on taking a personal loan.
The first thing you need to do is prepare all your financial documentation before approaching any money lending institution. This information is crucial as it is used to assess your financial status and worthiness of accessing the loan you need. The lending institution requires you to provide bank statements, statements on tax compliance and The schedule C and SE documentations to access your creditworthiness. The amount of income you receive is obtained from these documents and they play a major role in determining the amount of money you can borrow. It is always good to keep such documentation in order, organized and up to date if you are self-employed as it makes it easy for you when the need of a loan arises.
If you are in a situation where you cant prove that you have an income to the financial lender it is still possible to access a personal loan. In this case the financial institution uses your Debt to Income ratio and your risk rating to determine if you are credit worthy to take up a loan. 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.
For self-employed individuals, you can use collateral to obtain an unsecured loan from financial institutions. Collateral comes in handy when a self-employed individual doesnt have proof of income. Land, a house, your car or any other valuable asset can act as collateral for a loan you want to obtain. The amount obtained is approximately seventy-five of the total value of the asset handed over as collateral for the loan. If the loan borrower defaults payment, the asset can be retained by the lender or auctioned to recover the amount.
Another important thing you ought to do is have a clear plan on how you are going to repay the loan. With self-employment, income consistency is not guaranteed and you ought to invest wisely on the amount obtained for a sustainable return capable of servicing the loan obtained. For the installments to be paid on loan, ensure that they are spread over a favorable time scale and that they are affordable. Lastly, as much as it is tough to get a loan as a self-employed party, it is still possible to obtain one.