Personal loans for self-employed persons: Key things to know

If you want to take a personal loan but are not employed currently, then you do not need to fret. Most banks offer loans even to the self-employed persons so long as they fulfill other conditions.

For the unversed, a personal loan is an unsecured loan given by banks to borrowers for a range of personal needs which vary widely from a wedding to house renovation, and vacation to an individual emergency.

You must, however, need to show a regular income through income tax return or bank statement. There could be occasions where the bank may offer you a pre-approved personal loan based on your bank statement, credit score and overall profile.

Let us understand more on this here. Suppose Ajay Mishra, a 28-year-old freelance data scientist earns ₹1.25 lakh (on an average) per month. His monthly income makes him eligible to apply for personal loan since most lenders consider the monthly income threshold to be ₹25,000 only.

Besides, he will be entitled to apply for a personal loan if his credit score is sound, say, 750 and above. He is expected to carry identity documents such as aadhaar, voter ID and income tax returns (ITR).

If he can provide these documents, he will be considered eligible for a personal loan.

Conditions to fulfill

Additionally, some banks offer pre-approved personal loans to their customers, in which case they are not required to submit any documents.

These are some of the pre-conditions to fulfill to become eligible for a personal loan:

1. Income Tax Return or 26AS for the past 2 years.

2. Submission of necessary documents such as Aadhaar and PAN

4. High credit score e.g., 720 or above.

5. Age bracket should be between 21 to 65.

It is noteworthy to mention that a self-employed person does not need to produce any salary slips for obvious reasons. Meanwhile, other conditions remain the same i.e., a high credit score (above 720) and loan repayment schedule spread across 12 to 60 months.

Existing loan

Additionally, if you already have an outstanding loan then its repayment liability is factored in by the bank before it decides your ability to repay the fresh loan.

For instance, if your monthly income is ₹1.25 lakh and you already have an EMI for car loan of ₹15,000 then the net income is considered ₹1.05 lakh (after deducting the current loan EMI).

EMI calculator

It is, meanwhile, recommended for the borrowers to check the amount of expected EMI by using a personal loan EMI calculator here. With the help of this EMI calculator, you can ascertain the amount of monthly instalment that you will be supposed to pay by entering three inputs i.e., interest rate, total loan amount and loan tenure. 

For instance, if you borrow ₹5 lakh for 3 years at an interest of 10.5 percent, your monthly EMI  – as shown by the EMI calculator – would turn out to be ₹16,251.