Personal loans are a popular choice for anyone looking for a convenient and flexible financial solution.
However, securing a personal loan can be a bit more complex for self-employed individuals who do not have a stable income like salaried employees.
Despite the challenges, self-employed professionals can still secure the funding they need by fulfilling certain eligibility criteria set by lending institutions. Let's begin by discussing personal loans and the requirements for self-employed individuals to qualify for one.
What Is a Personal Loan?
A personal loan is a collateral-free loan offered by financial institutions based on your income, profession, credit history, employment history, and repayment capacity. It is provided with minimal documentation and does not require collateral or security. A personal loan can be used for nearly any purpose, including paying off debt, purchasing a car, funding your child's education, or covering the cost of significant expenditures like a wedding or vacation.
How Do Personal Loans Work?
The process begins with an online application, which the borrower submits.. The lender will make an offer based on assessing the borrower's creditworthiness. The loan amount will be deposited into the borrower's account upon approval. The loan is repaid through fixed monthly instalments (EMIs), which depend on the loan amount, interest rate, and tenure.
Eligibility Criteria for Personal Loans for Self-Employed Individuals
Here is a brief overview of the requirements that self-employed individuals must meet to avail of a personal loan:
1. Age: Most lending institutions require that borrowers must be at least 25 years old when applying for a loan and not older than 65 years at the time of loan maturity.
2. Income: As self-employed individuals do not have a fixed salary, lending institutions need evidence of their income to assess their repayment capacity. This could include tax returns, bank statements, or any other financial records demonstrating the individual's financial stability and ability to repay the loan.
3. Business Stability: The applicant must demonstrate that their business has been operating for a minimum of three years and that they have a reliable source of income and the stability to repay the loan.
4. CIBIL Score: The credit score of a self-employed individual must be at least 650. The interest rate decreases as the credit score increases.
5. Collateral: Some lending institutions might ask self-employed individuals to provide collateral, such as property or other assets, to secure the loan. This requirement is only applied to larger loan amounts to lower the risk to the lending institution.
Acquiring a personal loan as a self-employed individual is easier than it is perceived. Even though the eligibility requirements are stricter than for salaried individuals, having a steady income can give lenders the confidence to approve the loan.
Getting a personal loan is a big financial responsibility; you should only consider it if you're confident in your ability to repay it on time. Compare different lenders and their offers to find the best deal for your financial needs and repayment capacity.
IndusInd Bank, one of the most trusted banks, provides instant personal loans to self-employed professionals and individuals at low interest rates. They have a fully digital application process, with instant approvals and quick disbursement. Apply for a Personal Loan today.