Thanks to digitalization, now a loan can be applied and availed with just a few clicks on the mouse. Whether it is a personal loan, business loan, home loan, loan against property or a car loan – everything is possible digitally. Happy to read this. This is the one side of the coin. But on another side, still there is 70% loan rejection rate. And most of the loan rejections are in the case of self-employed people. Why it is so. How we can sort this.
The answer is lenders find it difficult to examine the risk factor for self employed professionals. And, this is the reason why most of the self-employed people don’t receive credit. In this blog, we will tell you how a self-employed professional can avail a loan easily.
Let’s start our discussion with categorization of self-employed group. There are two groups of people who come under this category. First one is those who own a practice like Doctors, Engineers, Lawyers, Interior Designers etc. The second one is those who own a business. They may have their own trading or manufacturing business. Whether it is a business or a practice, the self-employed person needs to establish its identity and existence for at least 2-3 years.
Add to this the most important is that those who want to avail a personal loan must be able to justify his/her income with no difficulty. Self-employed people need to keep the records – profit & loss account & balance sheets to provide income proof to the lender. They should be in the age group of 21 to 65 years and have a certain monthly income.
To add to this, let us have a glance on the important eligibility parameters for a personal loan –
How much credit score is required to avail a personal loan?
We would like to illustrate the credit score parameter with the help of a chart.
|Credit Score Range||Grade|
|0 to 1||No credit history|
As evident from the table, you need to have or maintain credit score of 650+
|Minimum Turn-over Yearly||₹ 15 lakh for self-employed professionals ₹ 40 lakh for self-employed non professionals|
|Bank Statement||Bank statement for the last 6 months|
|Age Group||21 to 65 years|
|Minimum Income Yearly||₹ 5 lakh|
|Minimum Profit||₹ 2 lakh after tax|
Major banks interest rates for Self-employed people
|ICICI Bank Personal Loan||11.25%||0.99%-2.25%|
|Bajaj Finserv||11.99%||1.50% – 3%|
|HDFC Bank Personal Loan||10.75%||Rs 1,999 – 2.5%|
|SBI Personal Loan||12.50%||2% -3%|
|Citi Bank||10.99%||Up to 0.5%|
|IDFC Bank||11.50%||1 – 1.5%|
|Tata Capital||11.75%||Up to 2.5%, flat fee of Rs 1499|
|Kotak Bank||10.50%||Up to 2.5%|
|Fullerton India||13.99%||Starting from 2%|
|RBL Bank||13.99%||Upto 2%|
|Union Bank of India||12.70%||0.5%, Minimum Rs 500|
|Yes Bank||10.99%||0.99% to 2%|
|Andhra Bank||11.55%||Depend on case to case basis|
|Syndicate Bank||13.40%||0.5%, Minimum Rs 500|
|Maharashtra Bank||15.10%||1%, Minimum Rs 1000|
|Corporation Bank||12.95%||1.5%, Minimum Rs 500|
|Allahabad Bank||13.15%||1.06%, Minimum Rs 1068|
|Karur Vysya Bank||13.90%||0.40%|
A good number of self-employed people do not whether they are paying the correct EMI or not. So, its always better to have few clicks on the EMI Calculator. Let us cite some example –
Case 1 – Ravi Kumar is a C.A by profession in Delhi. For his sister’s wedding, he has taken a loan of Rs 700000 at the interest rate of 14% for a tenure of 4 years. He has taken a loan from a leading bank in NCR.
His EMI will be 19,128
Case 2 – Babita Kumari aspires for renovating her spa. After all financial arrangements, she was feeling short of Rs 7 lakh. She took the same as a loan from an NBFC at the interest rate of 14% for a tenure of 5 years. As the tenure is more as compared with Ravi Kumar (cited above), her EMI will be different.
Her EMI will be 16,287
What all documents are required for self-employed people?
Lenders are very concerned about the documentation part for self-employed Personal Loan group people. An applicant applying as a self-employed professional need to furnish the following documents –
- Duly signed in application form
- 2 recent size passport photographs
- Pan card copy
- Identity proof documents like Driving License/Voter ID Card/Passport
- Address proof documents like rent agreement & utility bills
- Income proof like ITR of last 2 and 3 years
- Business existence proof like service tax registration/VAT/business address proof/incorporation details
- GST registration number and VAT returns
Frequently Asked Questions on Self-employed people going for a Personal Loan
1. Do a self-employed people need to have the collateral for availing a personal loan?
A personal loan is an unsecured loan. So, an applicant doesn’t need to have any collateral or security to avail this loan.
2. What is the personal loan interest rate for a self-employed professional?
The same is stated above. At fin tech platforms, you can easily compare and choose from the best available options.
3. Can a personal loan be transferred?
Yes, personal loan balance transfer is possible. And it is recommended to save on your EMI.
4. What if a self-employed person wants to preclose his loan?
Whether a loan borrower is a salaried or self-employed person – preclosing a personal loan may be beneficial for him. Some lenders allow preclosure after one month, some have defined a period for this. Prepayment charges need to borne by the loan borrower.
5. Does CIBIL Score impact the loan approval process?
Yes, it impacts. Above 700+ Score makes a winning personal loan application.
6. What is the tenure for personal loan?
A personal loan can be taken from a period of 12 months to 60 months.
Other alternative products for self employed professionals are mentioned below –
1. Gold loan
2. Loan against property
3. Property loan
4. Loan against fixed deposits
5. Loan against LIC policy