SBI Personal loan or personal loan through other lenders is the quickest and simplest loan option for those in urgent need of finance. With zero collateral or security, quick loan disbursement, the loan has no restrictions on its end users.
Self-Employed Individual Applying for Personal Loan?
Whether you are self-employed or salaried, a personal loan can assist you in meeting any of your financial requirements. However, in the case of self-employed individuals, the eligibility criteria required to attain SBI personal loan approval or personal loan approval through other lenders is different from their salaried counterparts.
Lenders usually review the applicant’s profile, business turnover, vintage of the business, annual income and other factors for determining the eligibility and interest rate for personal loan approval. As a self-employed individual, you should not just consider comparing personal loan interest rates offered by various lenders but also ensure to understand their terms and conditions before selecting a specific lender. Here are 6 most pivotal factors that affect the decision of a lender on personal loan approval for self-employed:
Income & Business Turnover
Lenders like SBI personal loans or other lenders ensure to factor in your minimum annual income as one of the eligibility criteria while evaluating your personal loan application. If your net income is below the set limit, then it may result in loan application rejection.
Apart from this, lenders also put a lot of emphasis on your business turnover. They usually require previous 3 fiscal years profit and loss or P/L statements to estimate the performance & financial position of your business. Thus, for a self-employed individual, sales and revenue form a major foundation for personal loan approval.
Income tax returns
Income tax returns are a crucial factor considered by lenders when evaluating your personal loan application. To verify your income, they usually check your previous 2 to 3 years income tax returns statement.
Irregular income tax returns can prove to be detrimental, hampering your chances of personal loan approval. Hence, it is necessary for you to file your tax returns timely. The income tax returns required by the lenders usually include returns filed in your name and in the name of your business.
Nature of Business/Profession
The nature of your business plays an imperative role in the evaluation of your SBI personal loan application or personal loan application with other lenders. Lenders usually prefer stable businesses (dairy, textile, paint, alcohol, telecommunication etc.) over volatile/seasonal businesses (firecracker, Holi colours manufacturing etc.).
They are generally apprehensive regarding lending those with volatile or seasonal business models because of their risky nature, which makes them doubt their potential to repay the personal loan.
Credit profile
Whether you are self-employed or salaried, a credit profile is one of the essential factors that lenders check while evaluating your personal loan application. As personal loans are not supported by any collateral or security, lenders carefully evaluate your credit report, which involves all the details of your credit history regarding your loans and credit cards.
Applicants with a credit score of 750 & above may get SBI personal loan approval or personal loan approval through other lenders, while those with a lower credit score of below 750 may not or may avail of a loan at a higher rate of interest. Unlike secured loans such as car loans, loans against property, home loans etc., where the collateral value becomes an essential element in deciding your credibility or creditworthiness, a credit score is the most crucial constituent in the case of a personal loan.
A credit score displays your creditworthiness as a borrower and assists lenders in determining the associated risk involved in lending you. Hence, reviewing your credit report regularly helps you figure out where you stand and tells you whether you need to take some urgent steps to improve your score.
As all the 4 credit bureaus, namely CIBIL, Experian, CRIF Highmark and Equifax, provide free credit reports once a year, therefore you must disseminate your request for free credit reports in such a manner that you are able to review a report once in 3 months.
Doing so helps you to keep a close watch on your credit report, which actually helps you to report the concerned bureau, lender or issuer in case of any incorrect display of data or false transaction in your name. A rectified credit report can automatically enhance your credit score, which in turn helps to boost your personal loan eligibility prospect.
Also, at the time of applying for a personal loan, ensure to avoid submitting your application with multiple lenders. Each personal loan application is recorded in the credit report as a hard enquiry for which the credit bureau lowers a few points of your credit score.
Thus, submitting multiple enquiries in a short span of time can be detrimental as it can significantly decrease your credit score. Moreover, as for a self-employed individual availing, a personal loan is a little difficult as compared to salaried individuals because of stringent processes. Therefore, for them maintaining a good credit score is even more vital as it improves their chances of availing personal loan approvals.
Age of business and your experience in the field
The older your business or practice is, the higher is your chances of getting your loan approved. This convinces the lenders like SBI, Axis, HDFC, Citibank etc., of sustainability and reliability of your business and hence improves your chances of loan approval.
Your business must have at least 2 years of operational history to avail of loan approval. Some fintech may also grant the personal loan approval to those with an established business having an operational history of around 1 year.
EMI affordability
Before you apply for SBI personal loan or personal loan through other lenders, evaluate your EMI affordability by reducing your insurance premiums, mandatory monthly expenses, existing EMIs, SIP contributions etc., from your monthly income. Remember, most lenders give preference to total EMIs, including your new EMI for a personal loan to be within 50% of your net monthly income.
Once you know your EMI affordability, choose the lowest tenure to lower your interest cost. While you do so, avoid compromising your fund contributions towards your crucial financial goals in pursuit of making higher EMIs, as this can significantly affect your long term financial health.