Getting a loan or credit card can always be a challenge for those who are working for themselves and are not into a job. The reason for this difficulty is that lenders find it rather difficult in determining how much of a risk you really are when they are lending you money.
Some of the steps or things that can help you get approved for loans as a self-employed person is a high credit rating. It is important to remember that if you borrow money for whatever purpose you will eventually have to pay the money back to the lender. This is obvious but many people mysteriously forget this.
With all that said, it is not impossible to be approved for loans if you work for yourself and we will look into how best to go about it in this article using these 4 steps.
1. Provide evidence of your income to the lender.
As a small business owner, you already know how important to keep a record of all documents concerning your business operations. If you want to get a loan, you need to provide proof of your income to the lender.
You need to keep records of your finances and other important documents as it relates to the day to day operations of your business. These include your bank statements, receipts of important purchases, tax forms and other accounting records must be kept and made available to the lender when you are asked. These do prove to lenders that you are a good risk to loan money to.
2. What type of loan do you need?
Different types of loans will attract different requirements. If you need a home loan as a self-employed person, you will need to provide years of your financial records to be approved. For a car loan, you will need to provide some sort of asset to be used as collateral.
There are other type of loans you want to consider. Personal loans are difficult to obtain as they do not have any collateral. They also come at a higher interest rates due to the high risk involved in giving out these loans.
There are also secured loans for which lenders do require collateral from you before they would approve the loan. For all these types of loans, if there’s is something you do completely understand, it is important to talk to your bank account manager to help you.
3. Lower interest rates will always be the best option.
However, expect to pay a higher interest rate than normal full-time employed persons. That may not sound like a fair deal. However, as a self-employed person, you do present a higher risk to lenders than those that work in a normal 9-5 job.
4. Make significant down payment.
Making a down payment on your loan application does two things in your favor. This first thing is that it proves further to the lender that you are a good risk and you can pay the money back without any defaults. Secondly, a significant down payment lowers the interest rate on the loan and therefore your monthly repayment amount.
If the amount of money you are paying on the loan each month is small, it is a lot easier for to handle, compared to a larger amount of monthly payments.