Compare personal loans for self-employed applicants
When you're self-employed, it's still perfectly possible to get a personal loan, and you may not have to compromise on rate.
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What's in this guide?
- Compare self-employed loans
- Can I get a personal loan if I’m self-employed?
- How to apply for a self-employed personal loan
- Will it cost me more because I’m self-employed?
- Secured loans for self-employed
- Can I get a self-employed loan with bad credit?
- What are my other options?
- What documentation do I need?
- Bottom line
- Frequently asked questions
In these cautious, post financial-crisis times, banks can be wary of lending to anyone without a solid financial track record. That can be especially true when a borrower is self-employed. But the number of self-employed people is on the up, and competing lenders want to tap into expanding markets such as this.
So although it can be harder to get a personal loan if you’re self-employed, it certainly isn’t impossible. Follow some basic steps, and you could not only get approved for a loan, but get the best possible rates for your circumstances. We’ll take a closer look at the available options, how to go about applying for a loan and what documents you’re likely to need to support your application.
Can I get a personal loan if I’m self-employed?
Yes, you can get a personal loan if you’re self-employed, and you’ll generally have a range of loan options to choose from. Several of the mainstream lenders with headline-grabbing rates are willing to lend to self-employed individuals, provided you meet their requirements for affordability and can show supporting documentation.
There are also a number of specialist lenders who have focused their efforts on more niche areas of the market, such as sole traders and the self-employed, and these are worth keeping in mind if you’re looking to take out a loan.
How to apply for a self-employed personal loan
Don’t hit apply until you’ve checked your eligibility.
Pretty much all lenders now offer an eligibility checker facility. You’ll need to provide enough info for the company to run a “soft” credit search – which won’t affect your credit score, but allows the lender to tell you whether or not it’s worth applying. It’s when you actually apply, that you normally consent to a “hard” credit check which does impact your credit score (a little).
Even better, check your eligibility with multiple lenders in one go.
Using each lender’s eligibility checker takes time, but a good loan matching service can do most of the leg work for you. You’ll enter your details once, and it’ll run the checks with each lender in its panel in a matter of seconds, to find out which would approve you and what rate they’d offer.Check your pre-approved rates now
Weigh up your options.
Don’t just apply with the first lender you find, even if it’s with your existing bank. Always compare a range of personal loans to find the one that best suits your financial situation. There are also alternative types of credit, such as secured loans and credit cards, which could better meet your requirements.
Will it cost me more because I’m self-employed?
Not necessarily – especially if you meet a lender’s criteria for having the supporting evidence and documentation needed for a standard personal loan, and you have financial records dating back for at least three years. However, you may be offered a higher rate if your circumstances paint you like a more high-risk borrower – particularly if you haven’t been trading for long.
As competition has grown, you may find personal loans for self-employed applicants are no more expensive than a standard bank loan. Just be sure to compare all the options available to you, and the features of and conditions applying to your chosen product before you sign up with a particular lender. The APR that a lender offers you may differ from its advertised “Representative APR”, and will be based on factors such as you credit score, income and expenditure.
Secured loans for self-employed
If you don’t have the employment history or documented income to get an unsecured personal loan, you may want toconsider a secured loan. This is a type of personal loan that uses the equity you have in your house as security against the cost of the loan, and generally offers lower rates than regular personal loans.
If you’re self-employed and work from a home that you own, a secured loan may be a better option than trying to get approved for unsecured finance.
Can I get a self-employed loan with bad credit?
Yes, it’s still possible to get a personal loan even if you’re self-employed and have poor credit history, but you could find that your options are quite limited. You’re also unlikely to be offered the most competitive rate, and may not be able to borrow as much as someone with good credit.
As with any loan, you can check your eligibility and get loan quotes before you apply, and this will give you a good idea of whether you’re likely to be approved for a personal loan.
What are my other options?
If you don’t meet the eligibility criteria for a secured or unsecured personal loan, or can’t find the right loan to meet your needs, you still have a lot of other options available.
Credit cards for self-employed
Depending on your credit rating and the purpose of the loan, there may be a suitable credit card for your needs. With a 0% purchase credit card you could make purchases and pay no interest for a set period which could be as long as 30 months, although expect to pay hefty fees to withdraw cash.
Alternatively, a 0% money transfer credit card lets you transfer funds from the card to another account and again pay no interest for a set period. In these instances you need to set, and always stick to, a repayment schedule to make sure that you repay the money before the low rate period ends. If you don’t, you could find yourself paying a hefty amount of interest over a prolonged period.
You should also weigh up any regular or one-off fees associated with the cards. For those with bad or limited credit histories, with a credit builder credit card, you start with a low credit limit but this can be reviewed in as little as four months.
Self-employed guarantor loans
With a guarantor loan, a third party (typically family member or friend) commits to paying the loan off in the event that you default on repayments. Your guarantor will need to have good credit (and ideally be a homeowner) and, frustratingly, the interest rates on guarantor loans tend not to be the most competitive (often around 40-50%).
If the loan is to fund the purchase of business equipment or materials (but not stock), you could use asset finance or invoice finance, whereby a lender will loan you money against the value of goods used for your business which you own, such as buildings, vehicles, machinery or office equipment, or will advance a loan against the money which is owed to your business and which has been detailed on outstanding invoices. Asset financing and invoice financing, however, are both likely to be more expensive than a regular personal loan.
There’s also a small number of innovative new lenders such as Tappily, that offer alternative takes on shorter-term borrowing, for borrowers that struggle to get approved by more mainstream lenders. Tappily was primarily designed to help people avoid expensive unauthorised overdraft fees.
What documentation do I need?
Your would-be lender will usually need to see some or all of the following:
- Tax returns (SA302). Once you’ve submitted tax returns, you can simply log into your HMRC online account and download your SA302 calculation. You should be able to produce copies of your SA302 calculation for at least the last two years to help prove the income that you declare as part of your application.
- Bank statements. These are likely to be requested so that the lender can corroborate the earnings shown in your SA302 calculation, and get a picture of your overall financial position (regular income and pattern of outgoings).
- Confirmation of three years’ addresses. This is usually acceptable in the form of bank statements, or council tax or utility bills
- Proof of any rental income. This should be declared and evidence provided, again through your bank statements or mortgage documents and statements, and you may need to produce any lease/tenancy agreements.
- Details of any shareholdings and dividend payments.
- Company/business information. Such as the status of the business (sole trader, partnership, limited company, etc), and details of anyone other than yourself with a financial interest in the business.
If you’re self-employed and looking for a personal loan, you might feel daunted by eligibility requirements. But there’s a good chance you already have the evidence of income that you need, in the form of tax returns, accounts or bank statements. It’s also possible to get a quick decision, with some lenders able to process and approve your application in less than 48 hours. You’ll improve your chances of making a successful application if you know what your options are, how the application process works and what documents you’ll need as evidence to support your application.
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