In these cautious times, banks are increasingly wary of lending to anyone without a solid financial track record, and that applies especially if they are self-employed. But as the number of self-employed people rises lenders realise that there is an expanding market which needs to be served. So although it may be harder to get a personal loan if you’re self-employed, it isn’t impossible.
Read our guide to find out more about your options, how to go about applying for a loan, and what documents you’re likely to need to support your application.
Fast, flexible loans from Post Office Money
Borrow from £1,000 to £25,000
Instant decision in most cases
Fixed rate and fixed monthly payments over the whole term
Applications from self-employed considered
Representative example: Borrow £15,001.00 over 3 years at a rate of 3.1% p.a. (fixed). Representative APR 3.1% and total payable £15,718.32 in monthly repayments of £436.62.
Warning: late repayments can cause you serious money problems. See our debt help guides.
4 popular lenders that accept self-employed applicants
There are plenty of lenders out there who will consider applications from self-employed individuals. Here are some examples with lending criteria:
How can I get a personal loan if I’m self-employed?
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.
You’ll be glad to know that you do have options! Several mainstream lenders are willing to lend to self-employed individuals, provided you meet their requirements for affordability and can show supporting documentation. In addition, there are a number of specialist lenders who have focused their efforts on more niche areas of the market, such as the self-employed. Finally there are alternative types of credit which could meet your requirements, such as a guarantor loan, credit-builder loan or certain types of credit card. Learn more about alternatives.
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.
Remember that as competition has grown, as a self-employed applicant, you may find loans which 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.
What is APR?
If you’re comparing any credit-based products, it won’t be long before you’ll come across the Annual Percentage Rate (APR).
This figure is designed to provide an annual summary of the cost of a loan and takes into account both interest and any mandatory charges to be paid (for example an arrangement fee) over the duration of a loan.
All lenders must calculate the APR of their products in the same way, and must tell you the APR before you sign an agreement, so for consumers it can be a handy tool for comparison.
Bear in mind, however, that lenders are only obliged to award this rate to 51% of those who take out the loan – the other 49% could pay more. That’s why it’s often referred to as the representative APR.
You should really take this into account when applying for a loan as a self-employed. While in many cases you could still be able to get the advertised rate, you may be offered a higher one if your circumstances paint you like a more high-risk borrower.
Are there alternatives?
In short, yes, however each comes with its own considerations and whether or not it is a smart choice will depend on your individual circumstances.
With a guarantor loan, a third party (typically a partner or family member) commits to paying the loan off in the event that you default on repayments. With a credit builder loan or stepping stone loan, you’ll start with a small amount of credit for a short period and build up your credit limit from there. In both cases, the interest rates you’ll pay may not be the most competitive.
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.
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 31 months, although expect to pay hefty fees to draw down cash. With a 0% money transfer credit card you could transfer funds from the card to another account and again pay no interest for a set period. With a credit builder credit card, you start with a low credit limit but this can be reviewed in as little as four months. 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.
There is also a small number of innovative new lenders such as Tappily, that offer alternative takes on shorter-term borrowing, for borrowers that striggle to get approved by more mainstream lenders. Tappily was primarily designed to help people avoid expensive unauthorised overdraft fees.
Tappily line of credit up to £2,500 as and when you need it
Tappily uses read-only access to your current account to provide a flexible line of credit.
Avoid unauthorised overdraft fees by setting account balance triggers.
Once approved, transfer money into your account within 15 minutes.
Representative example: Borrow £1,200 for up to 75 days at a rate of 124% p.a. (variable). Representative APR 49.7%.
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.
This will depend on a number of factors, including your lender’s assessment of affordability, the amount you ask for, and the degree to which you meet its eligibility requirements. What you intend to use the money for may also be a factor. Our table above gives some outline details, but you’ll find out more by clicking on our lender review pages.
Be sure you know what the money will be used for, and don’t fall into the trap of taking on too much debt. So only apply for the amount you know you will need, however tempting a headline rate offer or illustrative deal may be, and how easily you think you can afford the repayments. And of course, don’t lie about what you need the money for.
Most importantly, read and make sure you understand the eligibility criteria set by the provider, and can show any documentation it asks for to assess your application. You could consider asking a parent or other relative to act as a guarantor for your loan, which may strengthen your case for funding. Or finally, if you are in business with a partner, you could file your loan application jointly, making both of you equally responsible for repaying the money requested.
Chris Lilly is a publisher at finder.com. He's a specialist in credit-based products including business and personal loans, mortgages and credit cards, and is passionate about helping UK consumers make informed decisions about their borrowing. In his spare time Chris likes forcing his kids to exercise more.
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