Not very long ago, the self employed people were treated as having no credit history and it was very difficult to obtain Personal loan even for trivial purposes. The scenario is changing in the favor of enterprising individuals in the US and their credit is being accepted and validated more readily. Even the amount of interest is not as high as it used to be and this lot of businessmen is being seen in a new light altogether.
There is a new concept in the making – there are especially designed loans for the self employed. This is to cater to the special requirements that they may have. These people might need funds to setup a new business or to expand an existing business. What differentiates these people from regular employment holders is the instability of their profits. Their incomes might vary from one month to the other drastically.
Due to this, there is a greater risk perceived in the loans to the self employed. In return, the loans for the self employed offer tailor made solutions which cater to their special requirements. To this effect, the loans for the self employed have introduced concepts like overpayment, underpayment and payment holidays. So, unlike regular loan payers who are required to pay a definite amount at the beginning of every month, the self employed may overpay, ie, pay more than their requisite amount in a certain month and then underpay, i.e., pay less than the amount in another month. They may also enjoy payment holidays, so that they may take a leave from payment for a certain number of months after a regular payment for some months.
The loans may be secured or unsecured. Unsecured loans, due to the risk involved, are attained for a slightly higher interest rate – though owing to the stiff competition in the lending industry, this rate is no longer much higher. The exact rate depends upon various factors like the credit history of the lender, references for the lender and how secure the lender feels with the economic stability of the borrower’s business.
To hedge the risk in the unsecured loans, the lender requires an assessment of the borrower’s income and the payment ability before sanction of the loan. This assessment may be on the basis of a self certification or through certified accountants. These brief the income of the borrower on an yearly basis. Even in the case of a self certification, sometimes, the lender may require the certification to be signed by the borrower’s accountant.
Self employed loans can be raised for any amounts ranging from ?3000 to ? 250,000. This amount might be slightly lower in the case of an unsecured loan but normally if the credit history and the income figures are good, any amount can be raised. The change in the perception towards unsecured loans for self employed can be also attributed to advances in technology and better underwriting. Sometime ago, it was not possible to find any records and an absence of credit history amounted to a bad credit history. Now since these records are shared on line, all credit transactions are open to scrutiny. If the borrower gets a good reference, it becomes that much easy to find a loan at a much better interest rate.
With more options available, the self employed may not anymore take the first loan option that comes their way but can make detailed comparison and then decide upon the best available option.
Christian Phelps is a Masters in Accounting and Financial Management from Lancaster University Management School . He has been working with loan for self employed since his academics got over. To find Self employed secured loan,unsecured self employed loan visit.
