Your Guide to Getting a Personal Loan While Self-Employed

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As of the end of 2020, roughly 19.4 million Americans had at least one personal loan. Getting a personal loan requires quite a bit of personal information, and the process can sometimes be intimidating. For self-employed individuals, that process — and the associated stress — can be amplified. 

Things can get complicated for self-employed people who want to apply for a personal loan because of the nature of their income; however, that doesn’t mean a personal loan is out of reach. Here is everything you need to know about getting a personal loan while self-employed. 

How Do I Prove I’m a Good Candidate for a Personal Loan

- At a Glance -

Lenders often want to see that you have the ability to pay your loan back on time, but this can become tricky when working with self-employed borrowers. Proving a steady income stream is not always a straightforward process for people who work for themselves. Thankfully, even those who don’t have W-2s can still show lenders that they are a good candidate for a personal loan. Consider the following ways to verify your ability to repay a loan: 

Bank Statements

Bank statements can help provide your lender with peace of mind about your income levels. By analyzing several weeks or months of bank statements, lenders can see how much income you’ve been depositing into your bank account and whether or not that may amount to enough to cover your monthly repayment amount. 

Tax Information

Tax documents like returns and transcripts are another way that lenders can garner information about your income. This is an especially helpful way for those who don’t get W-2s or pay stubs to verify income levels. Your lender may ask for several years worth of tax returns or transcripts, the latter of which is a document from the IRS that includes financial information from your tax returns. 

While gross income will be one of the factors lenders analyze, they may also look at your net profit and loss, so consider how your expenses may impact these numbers like adjusted gross income. In some cases, the lender may approve you for a personal loan based on your adjusted gross income.

Collateral for a Secured Loan

Some self-employed people may have a more difficult time obtaining an unsecured loan. Secured loans — ones that are backed by personal assets — can be a good alternative option. Remember that the collateral you put up for a secured loan, whether it is a certificate of deposit or your car, are things that can be seized by the lender if you default on the loan. 

That may sound scary, but it minimizes the risk for the lender, which can help make you a more appealing candidate for a loan as a self-employed person. 

Cosigner

Having a cosigner when you apply for a loan is another option for self-employed individuals who may have less-than-stellar credit. Whether your credit is lower than you’d like it to be or you may have a hard time making the loan repayments on your own, applying with a co-signer can improve your attractiveness as a self-employed candidate for lenders. 

Your co-signer will be equally responsible for making the loan repayments, so the lender has an added layer of security in case your ability to pay falls through. 

✔️ For more information about cosigners, see our article titled Which is Better: Co-Signed or Joint Personal Loans.

Online Lenders that Work With Self-Employed Individuals

If you’re worried about your loan prospects as a self-employed person, consider that numerous online lenders specialize in or facilitate lending to the self-employed. 

  • SoFi
    SoFi offers installment loans of up to $100,000 via its online lending platform. These loans can be used for debt consolidation, home renovations, medical needs, and other expenses and are available to self-employed people, too. Self-employed people interested in getting a loan through SoFi must provide education history, credit score, financial history, and monthly debt-to-income ratio. They also allow co-signers, which can help self-employed people get approved for one of their personal loans.  
  • Payoff
    Payoff is a company that specializes in credit card debt consolidation. It offers borrowers up to $35,000 to consolidate credit card debt into one monthly payment. People applying for debt consolidation through Payoff must provide several different pieces of information for approval, including tax returns, Schedule C docs, and bank statements.  You can borrow up to $35,000 to consolidate your credit card balances into one fixed monthly payment. Payoff uses your tax return and Schedule C to verify income. Payoff may also request recent bank statements for bank accounts where you receive income.

    ✔️ For more information about paying off credit card debt, check out our article covering how personal loans are a good option to help pay off credit card debt.
  • Upgrade
    Upgrade is another online lender that offers personal loans of up to $50,000 that can be used for major purchases, debt consolidation, home improvements, and more. Upgrade asks self-employed people to provide two years’ worth of tax returns, including Schedule C, as well as tax transcripts from the IRS and bank statements for the past 40 days. 

Alternative Options to Personal Loans

In some cases, a personal loan may not be the best option for a self-employed person, or they may have a particularly difficult time qualifying for a personal loan. In that case, there are several alternative options to explore. 

Home Equity Loans

For self-employed individuals who own a home, it may be possible to borrow from the equity in the home. Home equity loans are installment loans that have a fixed term. Similar to personal loans, lenders will usually request your most recent tax returns to verify your income.

Cash Advances

Self-employed people can also take a short-term loan through their credit card, known as a cash advance. This should be a last resort option for emergency cash needs only since the APR for cash advances can be as high as 36% — much higher than the APR for purchases. 

Credit Cards

Credit cards present a simple option for self-employed people who are unable to get a personal loan. Making purchases on a credit card enables you to pay for those purchases over time instead of in one lump sum. One benefit of using credit cards is that they can help you build up your credit score so long as you make on-time payments. Those that use rewards cards may also be able to earn rewards, cash back, or travel miles, too. 

Next Steps

Choosing the right option for you as a self-employed person will require some analysis of your financial situation and your goals for the future. Be sure to have a solid grasp of your current financials and budget to see what you can afford in loan repayment amounts. Use that information to seek out options, and remember that there are alternatives available should your ability to get a personal loan be hampered.

4 thoughts on “Your Guide to Getting a Personal Loan While Self-Employed”

    1. Lenoard, that’s great news! We are so glad you were able to get what you needed and that the hard work we put into making good content was able to help along the way. Don’t forget to check back for more helpful blogs in the weeks to come!

      Best wishes for a great week,
      The AssessmentOption Team

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