It is already widely accepted that the chances of securing a personal loan with bad credit are less than when applying with an excellent credit score. It is also well known that self-employed applicants have a hurdle or two more to clear before lenders are convinced to grant approval. But what about self-employed applicants with bad credit scores?
Happily, it would be untrue to state that self-employed applicants have no chance of securing a loan when they also have a poor credit history. In fact, just as employees can prove an ability to make repayments, so too can those who are their own bosses. Therefore, the task of securing loan approval for the self-employed is not impossible at all.
So, what is needed to convince lenders that their investment is safe when granting a personal loan to a self-employed bad credit borrower? Well, there are a few aspects to the application that need to be paid careful attention to.
Criteria For The Self-Employed
The key issue for the self-employed is being able to prove a reliable source of income. Normally, proof of full-time employment is enough to assure lenders that an income is reliable. But, when it comes to a self-employed applicant seeking a personal loan with bad credit, the assurance required is not the same.
This is why there are extra criteria that self-employed applicants need to satisfy. Simply stating your current income is not enough, since a sudden downturn in the economy can have an immediate impact on that figure. So, before granting approval for the self-employed, lenders want to know how secure the business is.
As a result, it is necessary to provide tax returns and bank statements to confirm a regular income large enough to meet the personal loan repayments. However, even when these are shown to be in order, it may be necessary to provide security too.
Provide Collateral or Cosigner
There are two forms of security that lenders are happy to accept. Collateral is the traditional one, where an item of value is offered against the loan sum. However, a self-employed applicant seeking a personal loan with bad credit may not have an item valuable enough to meet the size of the require loan.
For example, in order to get a $10,000 loan, it is necessary to provide collateral worth $10,000. This means a family heirloom, jewelry or even a car may need to be offered up. These items can be lost if a repayment is defaulted on. If the required sum is $20,000, it may not be possible to get collateral.
Another option that can see a lender grant approval for the self-employed applicant is a cosigner. This is much more manageable because no item of value needs to be offered. Instead, a person promises to cover the personal loan repayments in the event the borrower is unable to make them.
Loan Size Matters
As with all loans, the size of the sum being applied for has an impact on the chances of success. For the most part, a few thousand dollars is not going to cause too much trouble, and providing proof of income is usually enough to secure a personal loan with bad credit.
When the sum required is larger, even a letter from the CPA confirming your status as self-employed will not be sufficient. This is where offering some kind of security is very useful, effectively assuring approval for the self-employed.
Still, there needs to be assurance that a means of repaying the personal loan exists. So, be prepared to provide all the documentation that is required. Unfortunately, fast approval – especially for larger loans – is very unlikely.