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How Non-Salaried Individuals Can Avail Personal Loans

Adhil Shetty

A personal loan is a great solution to a financial crunch and the availability of such loans is not just restricted to salaried professionals. Both salaried and self-employed individuals can avail personal loans as long as they meet the eligibility parameters set by lenders, most of the times slightly different for the latter.

In fact, personal loans have become an easy go-to option among both types of borrowers in recent times. According to a TransUnion CIBIL consumer credit report for Q42018, the total number of unsecured instalment loans stands at 16 million accounts as of December 2018 with a robust 29.3% YoY growth. Even Bankbazaar’s Moneymood 2019 report states that easy access to financing facilities via the internet has made taking a personal loan a hassle-free online shopping experience with low turnaround time.

There are quite a few banks and Non-Banking Financial Companies (NBFCs) that offer such loans to non-salaried individuals who come with a good credit score and other relevant documents. However, the options may seem comparatively limited to these types of borrowers, it is not always the case.

Here are some of the factors that self-employed professionals or non-salaried individuals should keep in mind while applying for a personal loan.

1. Provide sufficient proof of income and continuity of business

Self-employed individuals should usually be able to furnish the following documents to avail a personal loan:

  • Audited and Charted Accountant-certified financials for at least 2 years, which includes profit and loss account, balance sheets, audit reports, etc.
  • Last 3 years’ Income Tax Returns
  • Bank statements (6 months to 3 years)

The above documents also serve as proof for the continuity of business. Lenders have a minimum annual business turnover criterion, which varies from bank to bank. Apart from this, lenders prefer businesses that have been operating at least for a minimum of three years and consistently running in profits.

2. Meet the eligibility criteria

Lenders take into consideration a number of things to assess a self-employed applicant’s creditworthiness before sanctioning a loan to them. So, as far as eligibility criteria are concerned, lenders first check the income of the applicant (usually not less than Rs. 5 lakh a year), his/her income stability and credit score among other things.

The applicant should be aged between 22 and 55 years. Their business must be at least three years old, and the business turnover documents must be audited by a CA. If the applicant can convince the lender about their repayment capacity and meet the basic eligibility criteria, getting a loan should be a smooth ride. These loans can be availed by both self-employed professionals (like doctors, architects, CAs, etc.) or by non-salaried individuals. However, lenders evaluate a non-salaried applicant’s creditworthiness and have the final word when it comes to determining the maximum loan limit and interest charges applicable to the loan.

3. Work on your credit score

Having a good credit score (750 and above) will automatically increase the chances of loan approval.  It gives the lender a sense of confidence in your repayment capabilities even if you are not a salaried applicant. If you do not already have a great credit score, work towards building one before applying for a loan. For example, you can build a good credit rating by paying your credit card bills on time. Before you apply for any loan or credit card, you can yourself check your credit score. Just Google for “free credit report” and get yours in a few minutes.

4. Keep all documents ready

Here’s a document checklist for a personal loan applicant:

  • ID proof: Passport, voter ID, driving license, PAN card
  • Proof of residence: Passport, utility bills, ration card,
  • Proof of income: CA-certified financials, ITRs and bank statements
  • Business address and ownership document: Property document, utility bills

Do note that lenders may request for additional documents on a case-to-case basis, like business partnership proofs, etc.

Before applying for a personal loan compare interest rates and choose a product that best suits your requirements. You’ll also be well-advised to factor in various charges associated with the loan such as interest charges, Goods and Services Tax (GST), processing fee, prepayment or foreclosure fee, late payment or EMI bounce charges. It’s very important that you also evaluate the affordability of your repayments, as missed EMIs will invite additional interest charges and penalties apart from being a source of debt accumulation and a reason behind sinking credit score.

That being said, it’s not an end of the road for non-salaried individuals if their personal loan application gets rejected. They can always explore other options like business loans, loans against a mortgage, gold loans and bank overdrafts among others. But never compromise with due diligence before taking the plunge.

The writer is CEO, BankBazaar.com