Applying for personal loans usually involves a lot of red tape. However, applicants who are self-employed or have earnings from freelance or consulting work may find themselves facing additional challenges.
One of the first steps in applying for a personal loan is to produce documents to verify the applicant's income.
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This is a very simple process for people who work for employers because they usually only need to provide copies of the latest payroll. Some lenders can even electronically verify earnings through employer's payroll system, further simplifying the process.
However, potential borrowers who are not on the employer's payroll need to provide other documents to prove their income. The exact documentation required may vary from lender to lender, but in general it will involve tax records and/or bank statements.
More paperwork is needed
"Lenders may need tax returns, profit and loss statements and bank account statements for the last two years to verify that income is timely. If not, then sometimes you need a copy of a deposit check, "says Mary Monroy, a credit consultant for Clearpoint Credit Consulting Solutions.
For some individual loan applicants, the amount of paperwork required may be unpleasant. Susan Radhika, a Florida freelance writer, considered applying for a personal loan after receiving an attractive offer from a bank.
"I've been soliciting people, but I'm interested in it because the solicitation rate is really low. "I want to borrow $5,000 or $10,000 to pay off my credit card bill and do some work at home," Radhika said.
Ladika contacted the Customer Services Department because the bank's website did not provide detailed information on the income documents required by self-employed applicants.
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"When the customer service responded that I needed to upload a two-year tax return and all the schedules, I told them not to mention it any more. "I'm not a 23-year-old. The tax return is simple," she said. I don't deserve to scan and upload pages of documents for that small sum of money."
Two-year Income Certificate
Chris Dervan, senior vice president and product manager of PNC Bank, said that income verification is a standard requirement for all loan applications regardless of the specific source of income.
"We require all applicants to provide income information and documentation, so there is no difference between self-employed borrowers and self-employed borrowers in this respect. Change will be the type of documentation associated with people who don't have a payroll stub, "Dervan said.
Dervan said that lenders usually need two years of income certificates, which are usually certified by tax returns for applicants without payrolls, but added that the main goal is to ensure that they have a reliable income and a stable income history to prove that they can repay the loan.
Applicants can help the process run smoothly by preparing organized copies of relevant documents. For any type of borrower, if they have good records and documentation, the application process will be easier, "Dervan said.
Commercial Loan and Personal Loan
One thing that self-employed applicants may need to remember, he said, is the difference between gross and net income.
"They may think based on gross income, but they also need to consider deductions and expenditures that may offset that income. We're thinking about close to net income, "Devon said.
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According to Dervan, self-employed applicants may consider whether they are eligible to apply for commercial loans under their plans to use the proceeds of individual loans.
"If they are going to spend that money on business-related expenditures, it may be a better option for them," he said.
Although some applicants may regard the requirements of these income verification documents as a headache, German says these policies are designed to protect them. Before fulfilling this obligation, it is in the borrower's best interest to ensure that the borrower has the ability to repay the loan.
In addition, Dervan wants potential applicants to know that lenders encourage people with self-employed or freelance income to apply for loans and explore the various loan options they may receive.
"We welcome self-employed applicants and will do everything we can to cooperate with them and help them get loans," he said.