Self-Employed? Here’s What You Must Know About Choosing The Right Personal Loan

If you are self-employed and feel that a cash infusion could help you improve your earnings, you could consider a Personal Loan for self-employed individuals to help you out. Of the several loan products that can be availed by the self-employed, personal loan products have several features that make it a convenient and handy option for those in need of a loan.

In India a personal loan is a loan provided to individuals subject to fulfilling some minimum criteria. The loan can be used for any purpose whatsoever - business or personal. There are no pre-conditionalities attached. This is why it is a convenient product for self-employed individuals, especially those who run unregistered business enterprises or provide services in their individual capacity.

However, while there are several banks and NBFCs that offer a personal loan for self-employed in India, finding the right one can be difficult. Each lender’s personal loan product is unique and different from another lender’s. The loan amount, interest rates, repayment tenure, eligibility criteria and other features differ from lender to lender. It is imperative for you to research the offerings of each personal loan product so that you can decide which one is the best for you. Here are some of the key aspects that you should look into:

Eligibility Criteria:

Personal Loan Eligibility Criteria - Most lenders provide loans to self-employed individuals who have been in business for at least three years with an entry-age of 21 years or more. IIFL Finance for e.g. provides personal loans to self-employed people above 25 years of age and who have been running a business for at least three years. In addition, you need to have a credit score of at least 750. You may be offered some lee-way in respect of your credit score, if you apply with a guarantor or provide a collateral. However, you also need to select a loan term such that you repay the loan before you reach the age of 65. 

Loan Amount:

This is one of the crucial aspects to look into. Does the lender provide you the loan you require? The maximum loan amounts provided by lenders differ. Some provide as much as INR 50 Lakhs. However, the loan amount you are eligible for will depend on the EMI you can set aside each month for repayment. Loan amounts and tenures are intricately interlinked. The longer the tenure, the more is the loan amount that you will be able to avail with the same EMI.

Tenure:

The tenure for personal loans also vary from three years to six years depending on the lender. Suppose you need a loan of INR 5 Lakh for your personal loan to fund your business expansion. After looking into your documents, the lender offers an interest rate of 12% p.a. . If you choose a tenure of one year, the EMI you will have to pay is INR 44,424/- per month. However, if your cash flow doesn’t allow such a high EMI, you will have to opt for a longer tenure. By opting for a two-year tenure, you will reduce the EMI to INR 23,537/-, almost half of the EMI to be paid for a one-year tenure. The Personal Loan EMI Calculator is a handy tool available on the IIFL website that you can use to understand the loan tenure that is suitable for your level of income.

Interest Rates:

The interest rate assigned by banks or NBFCs also differ from lender to lender and range between 8.75% p.a. to 49.5%. The interest rate assigned depends to a large extent on your credit score. A high credit score results in you being offered a lower rate of interest as you are perceived to be creditworthy. Similarly, if your business financial reports demonstrate steady revenue streams and consistent cash flow, you will be able to negotiate for lower interest rates. Another factor that influences the interest rate finally offered is the nature of the business and whether it is considered a risky venture or not.

Documentation:

Even though the personal loan for self-employed requires minimal documentation, documentation is required nonetheless. Lenders will require proof of identity and proof of address. Usually, your PAN Card and Aadhar card is sufficient for this. In addition, bank statements will be required to show a steady source of income. If you are looking for a large personal loan, additional documents like ITRs, profit and loss statements and balance sheets may also be asked by certain lenders. If the personal loan is for investing in your business, it will help if you prepare a business plan demonstrating how the loan will be utilised, how it will help improve your profitability, and how it will provide the EMI required for loan repayments.

There are several banks and NBFCs offering personal loans to self-employed individuals. However, it is always advisable to research and compare the offerings of each lender before deciding on which is the best one for you. Look at this from the aspect of the cost of the loan as well as the eligibility criteria. If you have decided on availing a personal loan for self-employed in India, you could consider the personal loan offered by IIFL Finance. Available on easy terms with minimal documentation, you can apply online at any time. Our executives will reach out to you within one working day to guide you through the remaining procedures.