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About Personal Loans for Self-Employed

A personal loan is a loan that can be used for any purpose that the borrower needs- car repairs, buying furniture for the home or starting a business. There are two types of personal loan, - secured and unsecured. In the case of a secured loan, some collateral must be provided as security against non-repayment - for example under a home loan, the property being purchased is used as collateral.

Personal Loans For Self Employed
Personal Loans For Self Employed

Purpose of personal loans for self-employed

Self -employed individuals who own a business either as a sole proprietor or professional, need money to start and run their business. For this purpose, they take a personal loan. This loan is taken mostly without security. Personal loans are given to self-employed, salaried and non-salaried individuals. Documentation and interest rates in each case will differ.

Banks have strict rules when it comes to providing loans while NBFC’s are more flexible but have a higher rate of interest than banks. NBFCs and other private lenders may offer loans to individuals with low credit score but they may demand higher collateral as well as interest.

While the source of loan is a matter of individual’s choice, it is better and safer to deal with an institution that has a proper infrastructure and system in place.

Features of personal loans for self- employed

Good Interest rates

Self-employed individuals can get personal loans for business at competitive rates. This is particularly true for secured loans. You can visit the website of different banks and NBFCs to know the rates of interest. If the self- employed individual cannot produce proof of income, he/she may be given loan by mortgaging his property documents. The interest in such cases may be a little lower. Each institution has its own rules regarding eligibility, loan amount, interest rates and so on. The terms are available for viewing on the respective websites.

Immediate Loan Processing

In public sector banks, the processing of the loans takes at least a week while private banks do it faster. Depending on the terms of the institution, the extent to which the borrower meets the eligibility criteria, the documentation which the borrower furnishes, and some other factors, getting a personal loan - particularly a secured loan can be faster than other types of loans.

Flexible Tenure Periods

Most loans are available for a period of 6 months to a few years. The tenure will depend on the amount of the loan, the age of the borrower, and the income. A few other factors such as value of collateral may also impact the tenure.

No need for collateral

Not all personal loans require collateral. Unsecured personal loans taken for a short term may be given on the basis of other eligibility factors including the income and amounts in deposit with the bank.

Eligibility Criteria for a Personal Loan

Many banks give a personal loan for self-employed of up to Rs.20 Lakhs with a fixed rate of interest between 10.99% - 17.99%. The tenure of the loan is between 1 to 5 years.

The applicant must have a minimum age of 28 and maximum age of 65. In the case of professionals, the minimum turnover should be Rs. 15 Lakhs while in the case of non-professionals, the minimum turnover should be Rs.40 Lakhs.

Businesspersons should have been in business for a minimum period of three years and must be able to furnish proof of turnover and profit in the form of IT returns. Individuals should also be able to submit proof of consistent income. Most institutions require the PAT (Profit After Tax) should be minimum of 2 lakhs for professionals and 1 lakh for non-professionals.

The borrower must also provide documents to prove the ownership of the workplace. Bank statements of the last 6 months must be submitted along with proof of address of office. He must also provide two passport size photographs.

These are general guidelines regarding eligibility for a personal loan. For more specific criteria, you may visit the website or office of the lender.

Benefits of Personal Loans for Self-Employed

A personal loan has a number of benefits and can be used for anything from renovations of the house to planning your wedding or starting a business. Some of the most common benefits are:

  • No restrictions in use :

    The bank does not impose any restriction on the purpose of the loan. As such you can utilize the amount of loan as long as you are able to furnish the required documents.

  • Quick Process :

    Since there isn’t much documentation that is needed to apply for this loan, the application and process can be completed in a matter of days or even a few hours.

  • Easy to obtain :

    Since the loan amount depends on the ability of the applicant to repay the loan, there isn’t much of a hassle in acquiring it. There will be no need for collateral - except in certain cases - and banks will instead rely on your audited financial statements.

Rate of Interest and other charges

Different banks and financial institutions offer personal loans to self-employed. The rates of interest of public sector banks and other private banks differ from each other. The banks follow strict rules and have a fixed rate of interest while NBFCs charge a higher rate of interest than banks. Some banks charge processing fees for the loan while some banks do not.

Different factors can affect the rate of interest. Some of these factors include -

  • Term of loan
  • Age of borrower
  • Income of borrower
  • Whether or not collateral is supplied
  • Value of collateral supplied
  • Credit score and history of borrower

You can check with the lenders for the latest rates of interest. Some lenders charge processing fees and apply penalty for pre-closure of the loan account. It is advisable to check these details before applying for a personal loan.

How to apply for a personal loan?

The application process differs from lender to lender. However, here are the general steps you need to take to apply for a personal loan -

To Apply Online :

The customer will have to visit the bank’s website and provide their personal information there. After this, they can simply apply for the loan by filling out the online form. In case some documents have to be submitted, the procedure for doing so will be listed on the website.

For Offline Application :

You may visit the office of the lender if you prefer to make a physical application. You can enquire about the various terms and conditions as well as requirements of the loan when you visit the office to fill out the physical application form.

Most banks and NBFCs have the facility of an EMI calculator which you can use to ascertain the EMI you will pay against various amounts of loan and for different tenures. This can aid in deciding the amount of loan you want to take. If you visit the office of the lender, the officials there can help you with computations of EMI.

Top banks providing personal loans to self-employed

There are a large number of banks providing personal loans to self-employed. Some of the most popular lenders include -

  • Citibank:

    The loan amount offered ranges from Rs.1 Lakh to Rs.30 Lakhs for a tenure of 12 to 60 months. The rate of interest ranges from 15.99% p.a to 16.99% p.a for loans up to Rs.10 lakhs and 14.99% – 15.99% pa for loans above 10 lakhs.

  • ICICI Bank :

    This bank has a fixed rate of interest. The amount of loan that can be obtained is up to Rs.20 lakhs and the tenure is 12 – 60 months. The rate of interest will be 10.99% -17.99% p.a.

  • Bank of Baroda :

    This is a public sector bank which offers personal loans to self-employed. The amount of the loan is between Rs.1 Lakh – Rs. 10 Lakhs. The tenure of this loan is up to 48 months. You need a minimum 1 year of stable business to avail this loan.

  • HSBC Personal Loan :

    As of June 2018, the rate of interest on these loans is 11.29% to 17.50% p.a. Applicants can avail a loan of up to Rs. 30 Lakhs. However, the applicant must have an account with the bank and a net annual income of Rs.40,000.

Please be aware that the information provided here is subject to change by bank authorities without any notice. It is advisable to get the current information from the bank authorities.

Frequently Asked Questions: Personal Loans for Self-Employed

1. Is collateral needed for a personal loan for self-employed?

Self-employed personal loans are known as unsecured loans, so banks will not ask for collateral. However, your ITRs, financial related documents and other income related documents will be analyzed by them before approving the loan.

2. Is there a possibility of transferring a self-employed personal loan?

Yes, customers are given the option of transferring the loan to another bank that is offering a lower rate of interest on the personal loan.

3. What is the tenure of a self-employed personal loan?

Although the loan has a minimum period of 12 months, it can be extended up to 60 months. Tenures can vary from one institution to another.

4. Can your credit score impact loan application?

A credit score exceeding 700 will usually get the loan approved easily. The possibility of getting your loan application rejected or getting the loan at a higher interest rate does arise if your credit score is poor.

5. Does pre-closure of loan entail charges?

Yes, some institutions do charge a percentage of the loan amount as penalty for premature withdrawal.

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