Personal loans are an alternative way to meet your financial obligations rather than utilising your savings or prematurely withdrawing your investments. These loans are beneficial especially during emergencies for their rapid approval and disbursal procedures.
Also, you can take the help of these loans to make a big-ticket purchase, like a vehicle. Availing a personal loan to buy a car eliminates the need for a down payment. Home renovation, weddings, medical situations, etc. are some of the other uses of personal loan for self employed.
Such advances are also commonly used for debt consolidation as well. However, borrowers need to first know what debt consolidation is before going ahead with a personal loan.
Numerous applicants are unsure about how to go ahead with a successful application, especially first-time applicants. A high loan amount as well attractive interest rates from the lender is subject to whether the applicant knows how to avail a personal loan for self-employed individuals.
For that, they need to check whether they satisfy certain basic eligibility criteria such as
Business vintage of 3 years
Self-employed applicants need to own a business that is at least 3 years old. You have to provide relevant documents to support the same.
Business proof documents
You have to provide documents that certify the constitution of your business. Examples of these documents include:
- GST registration certificate
- Trade licence
- SSI registration certificate
- Shops & establishment certificate
- Memorandum of Association
- SEBI registration certificate
- Partnership deed
- Registrar of companies registration certificate
- Factory registration certificate
- Export-Import code
Financial institutions also accept any other documents that vouch for the establishment of your business to sanction a personal loan for self-employed.
Relevant financial documents
NBFCs need you to produce your financial documents like Profit & Loss Statement, Balance Sheet, etc. of the previous year. You may also have to audit such financial documents with a CA.
Income tax returns
You must file income tax returns of at least the previous year to become eligible for personal loans for self-employed.
These were some of the requirements you need to fulfil when you apply for short-term loans such as a Bajaj Personal Loan. You can avail up to Rs. 30 Lakh and benefit from approval within 24 hours.
Some other criteria that you also have to abide by include:
A high credit score
A CIBIL score of 750 or more is mandatory when you apply for unsecured loans like personal loans.
Financial institutions need applicants to hold a high credit score to estimate their creditworthiness. An excellent credit score means you have less chance of defaulting on the loan. Also, lenders need customers to hold a high credit score as these loans are collateral-free and are not backed by an asset.
How to improve your CIBIL score?
Availing a credit card can help you increase your credit score quickly. You can also opt for a secured credit card provided against a fixed deposit – these credit cards are also sanctioned to individuals with a low credit score.
Pay the outstanding amount before the due time, pay the total amount due, and keep your expenses within 30% of your credit limit to improve your CIBIL score.
Other relevant documents
In addition to the document mentioned above, you have to provide your KYC documents (Driving Licence, PAN, Voter ID, Passport, Aadhaar, etc.) and bank account statement of the previous month when applying for a personal loan.
Low Fixed Obligation to Income Ratio (FOIR)
The Fixed Obligation to Income Ratio (FOIR) is a criteria that some NBFCs check sanctioning personal loans. The ratio compares your fixed monthly obligations or debt with your monthly income.
Generally, the ratio must be below 40% – your monthly financial obligations must not be more than 40% of your income. Applying with a lower ratio means you can quickly pay the new loan EMIs without much trouble.
How to lower your FOIR?
Foreclosing your existing loans and clearing your credit card dues is an ideal way to lower your FOIR.
Satisfy the above terms and conditions before you apply for a personal loan. Lenders will approve your application quickly when you do so. Also, abiding by the above criteria helps you avoid all the reasons for loan rejection, which lowers your CIBIL score.