People who are self-employed are in a unique situation when it comes to taking out personal loans.
As a guide, here's what to look for when seeking a loan provider, and here's how to get yourself in the best financial shape possible when applying:
Be organised and informed about your finances before applying for a personal loan
If you're self-employed and have fluctuating income, or you’re reliant on different sources of revenue, do your research to see what might be accepted by lenders as alternative forms of earnings, including revenue from rent, shares and other investments.
It is also important to show some proof of savings, as well as a good credit history. Savings, both genuine and non-genuine, can be in the form of funds held in a bank account or in a term deposit for over six months.
To support your application, the key is to be as organised and as diligent with your financial records as possible and have these documents available for at least up to six months. Ensure also that your tax returns are accurate, up to date and paid in full.
Plan for future lean periods
The often unpredictable nature of self-employment means that downturns and lulls in income can and do occur, which can potentially impact loan repayments.
To prevent falling behind on repayments and risking any penalties, when you’re shopping around for the right loan, it could be helpful to look for ones that allow flexible repayments. This can help ensure that you have the flexibility to make extra repayments during periods when your income is regular, and to compensate for the lean spells.
The ability to draw down on money already repaid can be invaluable to self-employed borrowers. If your income levels are particularly precarious, another option could be to seek a loan that allows you to take repayment holidays during periods of low income.
What to look out for in a lender
Self-employed personal loan applicants should look for lenders that offer flexibility, are understanding about an individual’s circumstances and are sensitive to a borrower’s unpredictable financial future.
If you’re self-employed and considering applying for a personal loan, things to look for in a lender might include:
- Whether the lender accepts alternative documentation for credit approval.
- Flexibility regarding repayment periods, drawdowns, payment holidays and recognising alternative sources of income.
- A lender that offers fixed or variable interest rates on their personal loans.
Simplicity, flexibility and clarity are the essential ingredients for anyone who is self-employed and looking to apply for a personal loan. To get you started, find out how much your individual rate and repayments might be here before applying, (it won't affect your credit score).
Got a question and looking for more tips for getting personal loans while being self-employed? Call us on 1300 108 794. We're here to help.
This article provides you with factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser. Neither Pepper nor its related bodies, nor their directors, employees or agents accept any responsibility for loss or liability which may arise from accessing or reliance on any of the information contained in this article. For information about whether a Pepper loan may be suitable for you, call Pepper on 13 73 77 or speak to an accredited Pepper Money broker.
All applications are subject to the credit provider’s credit assessment and loan eligibility criteria. Terms, conditions, fees and charges apply. Information provided is factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser.
©Pepper Money Limited ABN 55 094 317 665; AFSL 286655; Australian Credit Licence 286655 (“Pepper”). All rights reserved. Pepper is the servicer of home loans provided by Pepper Finance Corporation Limited ABN 51 094 317 647. Pepper Asset Finance Pty Limited ACN 165 183 317 Australian Credit Licence 458899 is the credit provider for asset finance loans.