Personal Loan for Self-Employed: Your Guide to Affordable Financing

Self-employed individuals are often masters of their own time. However, when it comes to accessing credit, getting a Personal Loan is not always straightforward. Since these professionals are associated with fluctuating monthly income, lenders tend to be sceptical about their repayment capacity.

Even then, various lenders offer a Personal Loan for self-employed, provided that you meet the eligibility requirement, furnish the requisite documents and apply with a strong credit score.

In this read, we delve deeper into self-employed personal loans and uncover how such individuals can access affordable financing without having a salary account.

Can Self-Employed Individuals Get a Personal Loan?

Contrary to popular belief that a Personal Loan can only be availed by salaried employees, many banks and NBFCs now offer personal loans for self-employed individuals too. However, the eligibility criteria and the documents required may be different from those of a regular instant Personal Loan. Read on to know more!

Eligibility Criteria for a Self-Employed Personal Loan

As stated before, the eligibility criteria for a Personal Loan for self-employed varies significantly from those of a loan for a salaried individual. Here are a few key aspects to consider:

• Nationality - You must be an Indian citizen to apply for a Personal Loan.
• Age - Most banks and NBFCs require applicants to be at least 21 years old. 
• Credit Score - A 750+ credit score is indispensable for loan approval.
• Income - A consistent monthly income of at least ₹2 Lakhs per annum is required.
• Vintage - Applicants must be earning consistently for at least the past 2/3 years. 

While the aforementioned are the basic eligibility requirements for a self-employed Personal Loan, some lenders can also assess eligibility based on additional factors. 

Documents Required for a Personal Loan for Self-Employed 

Individuals have to furnish certain specified documents in addition to the application form. While the list of documents required can vary from lender to lender, most banks/NBFCs ask for minimal documentation that includes only the following: 

• KYC Documents: Just like any other loan application, KYC documents such as PAN card, Aadhaar card, Voter ID, Driving License, Passport, etc. are required as identity proof.
• Residential Address Proof: Utility bills or rent agreements are required as current residential address proof. 
• Income Documents: Financial documents/ITRs of the past 2/3 years, bank statements, etc., are required to prove stable income.
• Proof of Self-employment: Documents such as business registration, license or GST certificates are required to prove business ownership/self-employment.

Interest Rate and Processing Fee for a Personal Loan for Self-Employed

A Personal Loan for self-employed professionals is subject to various fees and charges, including the interest rate, processing fee and others. However, compared to traditional instant personal loans, certain lenders may charge a little higher. This is due to the high risk associated as well as the unsecured nature of the loan. 

• Interest Rates - The rate of interest of a Personal Loan for self-employed is governed by various factors, including credit score, existing debt, monthly income, etc. However, with a good credit profile, it is possible to secure a Personal loan for the self-employed at competitive interest rates. In general, the rate of interest for a loan for the self-employed starts around 10% p.a. for most lenders.
• Processing Fee - The processing fee (and other applicable taxes) of a loan for self-employed is a one-time fee charged by lenders for processing and handling operations. In general, lenders deduct the processing fee from the final loan amount after loan approval, before disbursal to your bank account.

Tips to Secure Low Interest Rates on a Personal Loan for Self-employed

Follow these few simple tips to qualify for a Personal Loan at the most affordable interest rates:

• Fulfil all eligibility requirements
• Apply with a high credit score
• Maintain a history of timely repayments
• Showcase healthy cash flow
• Apply with a good business vintage

Maximum Loan Amount and Repayment Tenure of a Personal Loan for Self-Employed

The funds availed from a self-employed Personal Loan can be as high as up to ₹80 Lakhs. However, the final approved loan amount depends on a variety of factors, including the following:

• Credit score
• Existing financial obligations
• Repayment history
• Secured/Unsecured Loan

The funds from a Personal Loan for self-employed individuals have unrestricted end-use, meaning that you can use them for both professional and personal expenses. For example, you can use the funds to support your professional growth, including funding business expenses/business expansion, purchasing equipment, and arranging working capital. You can also cover personal financial needs such as medical emergencies or wedding expenses with the funds from a Personal Loan.

However, before you apply online for a Personal Loan for self-employed, having a robust repayment plan should be one of your financial goals. With most lenders offering benefits like flexible repayment options, you can plan your monthly repayments with the help of an EMI calculator for a Personal Loan for the self-employed.

Application Process for a Personal Loan for Self-Employed

In the age of digitalisation, most banks and NBFCs have an online application process to avail of a Personal Loan for self-employed. This means that there is little to no need for bank visits, and you can receive funds in your bank account within a few hours of approval.

If you are a self employed applying for a Personal Loan, the following points are worth considering before you apply:

• Compare between lenders - Check for existing offers from lenders like banks/NBFCs. Compare the offers from various lenders in terms of low interest rates, processing charges applicable, pre-payment charges, benefits like minimal documentation and flexible repayment options.
• Check credit score - Always check your credit score before applying for a loan for self-employed. While a minimum score of 750 is desirable, applying with a higher score opens the doors to affordable interest rates, higher loan amounts and sometimes elimination of the need to provide security.
• Gather required documents - Once you have chosen a lender, research the documents required to apply for a Personal Loan and gather them for ease of loan application. Prepare digital copies of the documents for uploading during the online loan application process.

To Conclude

Unlike conventional belief, self-employed individuals can also avail of a Personal Loan just like salaried individuals. By fulfilling some basic eligibility requirements and furnishing the required documents, it is possible to avail of a Personal Loan for self-employed individuals with a maximum loan amount of as high as ₹50 to ₹80 Lakhs from top banks and NBFCs. 

While the interest rate of a loan for self-employed may be higher than conventional personal loans in certain cases, you can secure an affordable Personal Loan by applying with a high credit score, showcasing consistent income proof and a minimum business vintage of 2 to 3 years.

Frequently Asked Questions

Can I get flexible repayment options for a loan for the self-employed?

Yes. Most lenders, including banks and NBFCs, offer flexible repayment tenure for a Personal Loan for self-employed professionals.

How much time does it take for loan approval of a Personal Loan for the self-employed?

Your application for a Personal Loan is processed swiftly without any delay. To ensure faster loan approval, ensure to fulfil all the eligibility requirements and furnish all the necessary documents at the time of application.

Can I get a Personal Loan for self-employed individuals with a low credit score?

It is extremely unlikely to get approval for a Personal Loan with a low credit score. This is why it is important to apply with a high credit score of at least 750 or more.

Do I have to provide security to avail a Personal Loan for self-employed?

While personal loans are generally unsecured in nature, depending on factors like your credit profile, business vintage, repayment history, etc., certain lenders may require collateral to avail of a Personal Loan for self-employed.

Can I receive funds directly into my bank account with a Personal Loan for the self-employed?

Yes. The final approved loan amount is disbursed directly to your bank account after verification and final approval of your Personal Loan application.

Can I get a Personal Loan if I have my own business?

Yes. Many banks and NBFCs provide personal loans to self-employed individuals, although the eligibility and documents required may vary from conventional loans.

Do I have to visit a bank to apply for a Personal Loan for self-employed?

With most lenders having an online application process, applying for a personal loan can be done online or in person at a bank branch.