Should a self-employed opt for personal loan?
The rate of interest offered on personal loans usually depends on the loan amount and the repayment capacity of the borrower.
Personal loans work like any other loan, but it offers more flexibility and is pretty much available to everyone.
There are two types of personal loans namely secured and unsecured ones.
Generally, personal loans are sanctioned to salaried, non-salaried and self-employed individuals. However, the documentation and rate of interest is different for personal loans granted to the self-employed individuals.
The self-employed are those individual who own an unincorporated business all by themselves. They are known as sole proprietor of the business.
BankBazaar report says, "Though it might seem like it might be hard for self employed individuals to avail personal loans due to the fact that they are not salaried, that is not the case. They can easily avail personal loans without any hassles."
Many banks and financial institutions provide personal loans to self-employed individuals.
The only difference is that banks have stringent rules and some of the banks provide personal loans only for individuals with good credit, but NBFCs are more lenient while providing personal loans.
The rate of interest offered on personal loans usually depends on the loan amount and the repayment capacity of the borrower. Interest rate for this loan varies from different banks.
Here's a list of merits and demerits for sole proprietors who avail personal loans, according to BankBazaar.
- No restrictions on how the loan can be used
- Quick approval
- Option of using collateral
- Simple documentation
- Some banks offer additional benefits like personal accident insurance with the loan
- Competitive rates
- Higher interest rate compared to other loans
- No part payments
- A good credit history is important to avail a personal loan
- Mandatory bank account
- Late payment charges apply
A self-employed needs to give documents like proof of identity, address proof, audited financials of the recent two years as a proof of income, last 6 months' bank statement, office address proof, proof of workplace ownership, proof for continuity of business and two passport size photographs.
If you are sole proprietor and are planning to avail person loan, remember these points.