Sunday, October 28, 2018

Tips for Getting a Loan When Self-Employed



The digital revolution has created a wealth of opportunities, allowing many people to ditch their traditional jobs. While they may not be classified as business owners per se, this new group of entrepreneurs is considered to be self-employed, nonetheless. In addition to the perks that go along with this lifestyle, there are also drawbacks. For instance, how does one apply for a loan without a traditionally verifiable income?

Your Tax Returns are Vital
Obviously, you'll want to keep up with your taxes for legal reasons, but filing returns every year can also help you get credit. Lenders want to verify your income, no matter what your profession, and tax returns are really the best way to do that. If your job doesn't provide you with traditional pay stubs, copies of your tax returns for the most recent two years can serve. The lender will simply take your adjusted gross income from both returns, add them together, and divide that number by 24 to get your estimated weekly pay.

Your Credit Score Still Matters
If you are a registered business owner, you'll have to check both your business and personal credit scores. Although you should be doing this regularly to spot instances of identity theft, you'll definitely need to do this in advance of applying for any self employed loans. If you see any discrepancies, file a complaint immediately. Otherwise, work on paying off your debts to help improve your scores.

Reduce Your Debt to Income Ratio
Most lenders give as much weight to your debt to income ratio as they do to your credit score, so it's important to analyze it ahead of time. This ratio compares the amount you pay out in debts each month compared to how much money you earn within that time frame. There are two ways you can improve this ratio. You can either reduce the debt you owe (credit card balances, mortgages, car loans, etc.), or you can earn more income each month. If you can do both, you'll improve your ratio from both ends.

Be Ready to Pay More
The downside to applying for self employed loans is that lenders view you as a higher risk than traditionally employed applicants. This means you'll usually end up paying a higher interest rate in the beginning. As you begin paying off this loan and building up your credit profile, you'll have better opportunities. After a few years, it may be wise to look at refinancing options to see if you can get a lower interest rate.

Offer a Larger Down Payment
Even if you maintain excellent records and accept that you'll pay higher interest, it may still be difficult to get approved. Sometimes, offering a larger down payment can tip the scales in your favor. This can also help you pay less overall, because your monthly payments will be a little lower.
Getting approved for a loan as a self-employed individual won't be easy, but it is possible. Lenders may expect more from you, as far as your credit score, debt to income ratio, and down payment requirements, so your approval may depend on how much you prepare for the process. Taking the time to build up a positive credit profile can help you work miracles, as far as obtaining the loan you need.

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