Sometimes, a personal loan can be an excellent option if you want to consolidate your debts or finance a relatively large project such as home renovation. However, qualifying for a personal loan can be quite challenging if you are self-employed. Most lenders will ask you for documents proofing your actual income during the application process.
For most individuals, it means an employer-issued form. If you are self-employed, you may not have access to such a form, making it difficult to prove your income. But that doesn’t mean you can’t apply for a personal loan if you are self-employed.
Here are some helpful tips to help you apply for a personal loan even if you are self -employed.
1. Prepare Your Income verification Documents
The first thing you need to do is gather your daily/weekly/monthly income verification documents because most lenders will want you to prove that you have a genuine and active income source. Start by gathering critical documents that show how much you generated over the past few months.
These documents can include tax returns, bank statements, receipts, e-commerce ledgers, and even PayPal statements. Your primary objective is to prove to the lender that you have a stream of a stable source of income.
The exact documents needed to prove your income may vary slightly from one online lender to another. They will also depend on your exact work or business.
2. Determine How Much Money You Need To Borrow
Personal loan lenders in Canada are quite flexible and won’t deny you a loan as long as you demonstrate the ability to repay the loan amount plus accrued interest on time. However, you need to establish the exact amount of money you need to borrow and what it is for.
Don’t apply for a personal loan just for the sake of it. Deciding the reason why you need to take a loan before the actual application protects you from taking out more money than you need and digging an unnecessary and unwanted financial hole in your budget.
3. Complete the Pre-Approval Process
Once you have determined the reason for borrowing and how much money you need to borrow, take some time to shop around for potential lenders and compare rates. However, you need to keep in mind that the rate you receive during the pre-approval process might not be the actual rate.
The good thing is that most lenders have an online portal where you can easily complete the pre-approval process in a few minutes. All you have to do is provide the lender with some basic information, and you will know whether your loan request has been approved or declined in a few minutes.
If your loan request is approved, you will know exactly how much money you can borrow and the interest rates, plus any other fees that may be charged on the loan amount. Always pay close attention to such information.
4. Have a Clear Repayment Plan
When you are approved for a personal loan, and you are self-employed, you need to ensure you have a clear plan on how you will repay the loan on time. The worst thing you can do is miss payments, make late payments or default on your loan.
Before you allow the lender to go ahead and process the loan, make sure you have a plan that will help you honor your agreement with the lender and make on-time payments. If you don’t have a repayment plan in place, don’t take the loan.