Elements that Decide Approval of Personal Loan for Self-employed

When a self-employed individual applies for a Personal Loan to a bank or NBFC; the lender considers a few factors before approving the finance. The consideration for loan approval depends on the financial eligibility factors including age of the borrower, the reason for the advance and alike. Well, there is no denying the fact that credit score of the individual is one of the most important factors considered by the banks.

Critical Factors that Define Approval of Personal Loan for a Self-employed:

  • Income Tax Returns:

First of all the bank would consider if you have filed your income tax returns on time or not. Lenders are exceedingly particular when it comes to Income Tax Returns (ITR) for a minimum of last three years of individuals approaching for a PL.

  • Existence of the Business:

The time span of a business assures the lender about the reliability and sustainability. Your business duration actually ensures if you can pay back the loan in time. The stability of the business and your source of income is truly essential.

  • Income and Profits:

If you are able to repay without defaulting is the primary concern of the lender. Your disposable earnings as a self-employed professional would help the lender to assess your capacity to repay the loan.

  • Nature of the Business:

Some businesses could be unstable or rather seasonal. This definitely won’t give adequate assurance to the bank about your repayment ability every month. The kind of business, therefore, does play a vital role when you apply for a personal loan as a self-employed individual.

  • End use of the fund

You need to declare the purpose of availing the loan. The bank judges if it is your actual need or just self-indulgence.

When you approach a bank as a self-employed individual for personal loan they need to ensure if you are worthy of receiving credit or not. This worthiness depends on how good you are with your finances. If you have serviced loans successfully earlier; it confirms that you would be repaying the loan on time without missing payments. The process that banks and other financial institutions follow to know your credit worthiness is through your CIBIL (Credit Information Bureau Limited) score.

  • Your age:

On age the factor, consideration may differ from lender to lender. A self-employed person should be within 25 to 65 years of age.

  • Right Documents:

Never submit fake documents to the bank when you apply for a personal loan.

Now, while all these factors play a noteworthy role, whether a PL would be approved for a self employed, Cibil score (Credit History) turns out to be the crucial one.

So before applying for the loan it is important that you ensure that you have a good score.

What factors lower CIBIL Score?

  • Too many Personal loans
  • Missing loan installments
  • Coming too close to the limit on credit cards
  • Not paying credit cards back on time
  • Not paying credit cards in full
  • Too many rejected applications for loans/credit cards
  • Settling credit cards

However if you have a low CIBIL score, you need to know how to get Personal loan for Low CIBIL score.

While the CIBIL data says 80 per cent of the loans that get sanctioned have a score higher than 750; nevertheless, the CIBIL score is not the only factor which lenders take into consideration while deciding and approving a Personal loan to a self-employed individual. A mainstream bank may ignore a credit card default in the past if you have a regular good income flow.  Your future financial prospects, demographics, education, socio-economic conditions may help you in getting a PL despite your low CIBIL score.

NBFCs (Non-banking financial Institutions) are relatively flexible with credit scores and the cut-offs as compared to banks. If you have a low credit score, you are advised to approach a NBFC instead of a mainstream bank.

You may choose to approach a Peer-to-peer (P2P) lending website. You may get a personal loan regardless of your low credit score.

If the cause for your low score is a failure to pay, it is suggested to clarify the lender why you had failed to pay. In case it was not an intentional default; lenders at times might excuse. If you have a convincing explanation with evidence say, you had a sudden loss in business or there was a medical emergency for which you couldn’t afford to pay back; put across clearly. If found authentic; the lender might consider.

All in all if you make plan thoughtfully you could easily grab the best deal!

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The Bad Credit Score Survival Advice

A red flag in the credit information report is like a fire in the jungle. You do not know how much damage it would make until it eases off. Surviving bad score is thus not easy. A lot of people might share the tricks of restoring credit score however the truth is, it is easier said than done.

Once ruined it would at least take six months to rebound the low CIBIL score. Many a times the damage stays on your report for years to come. All you can do is pacify the bad history with good history.

Let’s find out how you can cope with bad score and roll over the financial dice in your favor once again.

Seek professional advice on bad credit score survival.
After you come to know about your low score, the first step should be to seek a professional help. When you contact a Credit Improvement Agency, it would assess your credit report and guide accordingly the ways to improve the score.

If however you choose to do it yourself, go for free CIBIL check online and study your report. It will help you understand the gravity of the problem. After studying the report, if you find any errors eliminate them without a delay.

Make a budget and organize your finances
With bad score, your credit worthiness is hurt very badly. You need to take charge of financial conditional and analyze your expenses and incomes. Calculate your net income and know how much you actually have in hands to pay out the debts and installments. You should try to close the expensive cards and accounts first and try to save as much as possible.

Not to mention, you should try to add as much income avenues as possible and try to have some surplus every month. Your sole aim should be to become take your debt utilization ratio to 30% of the limit being granted to you.

Contact your creditors and make a repayment plan
When you have too many debts to manage, you should consider contacting your creditors in a hope to find an option to survive the bad account. Speaking with your lenders may help you find a middle path with lowered interest rate or a new repayment plan.

Raise additional loans to pay off loans / credit cards
After you limit the pressure of debts by closing expensive cards and refinancing of the loans, consider applying for new secured loan to survive the bad credit. You can use the amount to manage your finances and repay diligently all the installments. This would build a good history and gradually improve the score.

Use a co-signor or guarantor to avail low interest loan
When you have bad credit score with red flags in the credit report, it is unlikely that banks would offer you loans at low rate. With bad score you become a risky prospect for the bank and they want to lend only with a certain degree of security. Besides rejection of a loan application further ruins the score. Keeping both the facts in view, you should apply for loans with a co-signor or guarantor.

You can ask your friend, spouse or blood relative with high credit score to become a co applicant or guarantor for you. This would raise the chances of loan approval and that too at normal interest rate.

Use a high worth asset as collateral
With bad CIBIL score each unplanned financial activity would hurt your score further. Besides loan repayment and credit utilization ratio, the mix of loans and length of loans also affect your score. If you have home equity or other high value assets such as Gold, you can use these assets as collateral and raise a secured loan.

Consolidate your debt
When you have too many debts to pay and manage every month, you can consider consolidating them into a big umbrella loan that helps you close all accounts into one. You can consolidate loans as a long term personal loan using your home as collateral. The goal of consolidating loans is to make your monthly repayment affordable and save some surplus every month.

Rent a home/property
Last but not the least you can consider renting your home or part of your home to raise some extra funds and save some amount every month.

Using all these steps you can gradually improve your credit health.