Personal Loan If you’re Self-employed

Should you Avail a Personal Loan If you’re Self-employed?

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Perpetual money flow is an important factor that will help you in achieving your financial goals in a smooth manner. In recent years, the rapid growth of self-employment has become a strong characteristic of the UK economy. From 3.3 million self-employed individuals in 2001, the number of self-employed has risen to 4.8 million in 2017. Becoming your own boss is certainly a great accomplishment but the shortage of funds to stay on top of your finances also require great consideration. So the grave question when you need funds is – should you avail a personal loan if you’re self-employed? And this article will help you take the right decision. 

What are self-employed loans?

Self-employed Loans are a type of personal loans that can be taken by a borrower for a brief period of time. These loans can be taken out without pledging any collateral or asset. Also, a few of the lenders also offer these loans without any guarantor. That means you do not have to search for a co-signor to vouch for you at the time of borrowing. 

Self-employment is staring and running a business or social enterprise. A self- employed individual doesn’t work for a specific employer.

Moreover, loans for self-employed can help you if you are in an urgent need for liquidity. These are quite flexible that means they can be used for anything. You are free to use the loan amount the way you want it – as there are no restrictions on the usage of it. It can be used to replace the boiler, or to give your garden a new makeover, or to pay for your kid’s school fee. You may also invest the money that you receive in your business to maintain its growth.

What are the eligibility criteria for a self-employed loan?

There are certain eligibility criteria for availing Personal Loan for Self-employed individuals. The minimum and basic prerequisites that are needed for a loan application are mentioned below:

1.  Age
You must be 18 years or above to apply for the loan. Lenders are credit brokers do not entertain applications from individuals who are not 18 years old.

2. Citizenship
This matter a lot. To avail a loan in the UK, you must be a citizen of the United Kingdom. Your loan application may be turned down altogether by the lender if you are not a citizen of the UK and are just residing over there.

3. Bank Account
You must have a valid and functional bank account. Most of the lenders transfer the loan amount to the borrower’s bank account if they approve the borrower’s loan application.

4. Income
You must have proof of income. A steady and regular flow of money is required. If you’re a homeowner and earn money by putting your house on rent, then your bank statement must show that.

Proof of income is necessary as the loan is unsecured. The lender is already taking the risk of borrowing money without asking for any mortgage. So, the lender has to have the proof that you can afford to repay the loan.

What are the uses of a self-employed loan?

It is quintessential to know the uses of a loan before you apply for it so that you can use it to its optimum level. Self-employed loans can be used for: 

  • Debt Consolidation: You can use the loan to consolidate your prior or existing debts into one. This will help you manage your debts as you have to make a single repayment against all the other debts.
  • Business Purposes: If you have a side hustle that needs funds – you can avail a Personal Loan for Business that acts in the same as a self-employed loan.
  • Home Improvement: Use the loan amount to make necessary improvements to your home such as loft conversion, kitchen up-gradation, garden makeover, or for adding a new room to your property.
  • Vacation: Fund your dream vacation using the loan amount and repay the loan in monthly instalments. 

Why should you take out a self-employed loan?

In order to answer this question, you must answer the following questions first: 

  • Why exactly you need the money for?
  • Will you be able to repay the loan?
  • How long will you take to repay the loan? 

If you require a much-needed cash injection and have tried every other alternative – then using this loan may prove to be beneficial for you. But prior to making any concrete decision regarding the loan, evaluate the total amount that you need to borrow and for how long. Calculate the overall cost of borrowing by taking into consideration the rate of interest and the APR

Why shouldn’t you take out a self-employed loan?

You must not consider to take out a self-employed loan if your income is not steady and regular. If you have a regular flow of money, you can easily repay the loan along with other regular monetary obligations. While if your income is not regular, you may find it difficult to repay the loan. Although, none of your assets will be at stake, however, your credit score may be damaged severely, if you default on the loan. 

Conclusion

The factors contributing to the decision of taking out a loan varies from individual to individual. If you have a solid financial plan that will help you in repaying the loan easily, then you can opt for the loan. But if you are not sure if you can afford to repay the loan, it’s better to find alternatives. Some individuals may have an excellent credit score and that is why the rate of interest they receive may be lower as compared to rates that are offered to individuals who have a bad credit score. Therefore, the answer depends on individual circumstances rather than a general perspective. A personal loan is a great financial tool – if – and only if used wisely and responsibly. Otherwise, it can create a financial upheaval in your life. 

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