Are you a someone who works for himself and wants to take a loan for debt consolidation, home improvements, car loan, caravan loan, house deposit, business purposes, Christmas cash, funeral, holiday, boat loan, motorbike loan, cosmetic surgery or a wedding? If the answer is yes then self employed loan is what you need to look out for.
What are self employed loans?
Self-employed loans are those loans that are taken by the self-employed people from the different lending institutions.
Who is a self employed person?
A self employed person could be an individual who operates a business or profession as a sole proprietor, a partner in a partnership, an independent contractor or a consultant.
How are the self-employed loans different from other loans?
Since the loan is given out to individuals who have a variable income, lending institutions find it difficult to evaluate their loan application. The loan rate depends on the fact whether you have certified accounts. In case of employed people their salary certificate becomes an easy source of information to gauge their income.
The income tax returns could also be looked at but the difficulty arises because they are mostly understated. In case of self employed loans the business should not be less than two years old.
More flexibility has been incorporated into the repayment schedule of these loans. Some of the features that have been incorporated into the repayment schedule are overpayment, underpayment, and payment holidays.
Types of self employed loans
Self employed loans can be either secured or unsecured. Secured self employed loans are available at lower interest rates because the loan amount is given against some security. The security is usually home and real estate. This type is loan is suitable for taking a larger loan. Unsecured loans are available at higher interest rates and will not require any security. Since the interest rates are high unsecured loans are better suited for taking smaller amount loans.
How convenient is it to procure these loans?
Earlier self employed loans used to be difficult to find and expensive to procure. However now with more people being self employed, self employed loans are more widely available and are more affordable.
Even if the borrower has an adverse credit history or bad credit rating, such as mortgage arrears, credit card problems or payment defaults these loans are available at a price.
The rates vary from 10.9-27.60% APR with an average of around 17.5%.
Most lenders are offering self employed loans with "limited documentation" or "no documentation". This is highly favourable to the self employed who cannot forward documented income. In place of this provision lenders may offer self employed loans at a slightly higher interest rate (1-2% higher than normal interest rates) or will have a requirement for additional qualifications. Lenders may also compensate the high risk in self employed loans with a higher down payment.
Importance of a good credit history
Credit history always plays a crucial role in deciding the different aspects of self employed loans. Good credit history provides benefits that no other qualification criteria can provide. Good credit score makes it easier for the borrower to get the approval for self employed loans. With a good credit score the loans to value ratio can reach up to 90%. Moreover it may help in reducing the down payment to as low as 20% which otherwise goes as high as 40%.
Current scenario of self employed loans in UK
There are approximately 2.75 million people who are self employed in UK. With the rising number of self employed in UK, self employed loans have become an emerging category in the loans market.
A self employed borrower is the one who owns 25% or more of the business from which income is derived. Self employed loans are not new to the loans market; however, they have recently been adorned with flexibility and ease with respect to a self employed. With this new outlook towards self employed loans, self employed should be careful not to misuse this freedom. Refrain from overstating your income and exercise self control. Then, there is no stating the fact that self employed loans will prove integral to strengthening your very own micro economy.
Finally, self employed loan programmes vary from one lender to another. So, it might be a good idea to look around. There will be lenders who would appropriately charge for self employed. All you need to do is to keep shopping.