Self Employed Loans Guide – How to land a Loan if you are Self-Employed

Can you get a loan if you’re self-employed? If you answered ‘no’, you need to read our guide on Self-Employed Loans!

Finding yourself a loan when you’re self-employed can be challenging. Most traditional lending companies won’t consider your application, unless you have a steady income. And a steady income translates to a fixed salary. Not ideal for those that own their own business or work for themselves. Working for yourself is difficult enough at times, without having your application denied left, right and centre for a loan you so desperately need.

Everyone struggles with money from time to time, that’s why a loan is an effective way to help you out of a tough spot. But, if you’re self-employed, some lending options aren’t always open to you. However, fear not. Where there’s a will, there’s a way. We’ve got a complete guide to borrowing money when you’re self-employed. We’ll outline what all your options are, how to get the best rate and secure yourself a loan for whatever you need. Welcome to our self-employed loans guide.

Can I get a loan?

One of the first questions most self-employed loan seekers end up asking is can they even get a loan. Well, we’re here to tell you that the answer is a big, fat… yes! If you’re self-employed you can find yourself a loan. Whilst traditional lenders may be sceptical about accepting your application, there are other lending methods available to you as well. It all depends on where you look. See, the type of loan you apply for does matter. Personal loans are a great way of borrowing medium-largeamounts of money. But, it all depends on how much you’re looking to borrow. We’ll outline some lending options in the section below.

Loan Types

First, we’ll start with the two main loan types on the market. See, almost every loan can be categorised into two sub categories; secure and unsecure. But, what’s the difference? Secure loans are loans that are secured against your property or possessions. By putting these up as collateral against the loan, it allows lenders to hand over larger amounts of money, but at a cost. See, secure loans mean that if you can’t meet the loan repayments, your home or possessions could be repossessed (usually as a last resort). However, these kinds of loans are usually for larger amounts. Mortgages are a type of secure loan. Unsecure loans therefore, are loans that don’t require you to put up anything against the loan. This means that they’re usually for smaller amounts of money but are considered less risky.

Now, we’ll get down to the personal loan types that are available. Firstly, we’ll start with guarantor loans, then move onto payday loans  and finally look into bank or other lenders’ personal loans. We’ll also look into credit cards too.

Guarantor Loans –First up on our list, these types of loans are usually best for those with bad credit. And why? Because instead of relying on your credit score like other lenders, guarantor loans only ask you to provide a guarantor with your application. They’ll sign to agree that should you be unable to make repayments on the loan, your guarantor will cover them for you. However, guarantors will only be contacted as a last resort. A guarantor can be a friend or family member, fiancé, landlord or even your boss. They just need to be a UK homeowner, with good credit and between the ages of 18-78. These types of loans are usually for medium – larger amounts of money (£1,000 – £15,000).

Payday Loans –Whilst you’ve probably heard of this dreaded loan term before, it is an option for borrowing money when you’re self-employed. Payday loans are designed to give borrowers a little boost of cash to hold them over until their next payday. A nice idea, right? Well, it is for a short term and small amount of money. But, when you miss or prolong repayments, the interest rate on the loan can grow and grow until you end up paying back thousands on top of what you originally borrowed. These are considered very risky loans and are typically for small amounts of money. Usually between £100 and £1,000.

Banks and Other Lenders’ Personal Loans –Dependent on which you choose, they are loan options available to you. However, there’s a few things you’ll need. Usually, you’ll need good credit and a steady income. Now, the self-employed may pay themselves through contracts or dividends (not an actual ‘wage’). These options usually have good rates, but they’re open to good credit holders and, you guessed it, those with a regular income. These amounts can range between £1,000 – £15,000 (and sometimes higher). But, the more expensive the loan, the more likely it is to be a secure loan. Both guarantor and payday loans are unsecure loan types.

Credit Cards – Sometimes, using a credit card can work out cheaper than a loan. Depending on your credit card rate, you could end up borrowing a similar amount of money, at a lower cost. However, the best rates for credit cards are usually for those with a good credit history. So, unless you’ve already got a credit card with a fair rate, you may be better off looking for a loan.

Why look at Credit History?

Before the days of computerised credit scores, banks and other lenders would lend money through trust. Similar to a modern-day guarantor loan, you’d be able to borrow money with a recommendation from someone who trusts you. But now, it’s all about your credit history. Your credit history is your financial footprint, and it shows lenders what kind of borrower you are. It shows loans you’ve taken out in the past, any outstanding debt, credit cards you own and how well you’ve paid off bills. The better you are at paying money back, the better your credit score. However, this isn’t the case for all bad credit scores. See, some have never built up a credit profile by having a credit card or paying a bill (with their name on it). So, it makes them (in the eyes of the lender) a bad borrower.If you’re both self-employed and with bad credit, this makes getting a loan more challenging. But, there are options available to those with bad or non-existent credit. Bad credit guarantor loans are not reliant on a credit score, so you don’t need a ‘winning’ credit score to land yourself a loan.

Interest Rate Comparison

Whilst the best loans are available to those with good credit, it doesn’t entirely limit your options.But, it does mean that your loan could cost more than someone borrowing with good credit. If we look at 3 of the 4 examples listed above, we can compare the representative APRs available on each loan.However, representative APRs are only an example, and your actual interest rate will depend on how much you want to borrow, and for how long. So, we’ll look at 3 examples.

Payday – Typically, the average interest on a payday loan can be around 1000%. So, if we look at borrowing £500 over 12months, you’d be repaying a total of £5,500.

Guarantor Loan – Whilst many guarantor loan rates vary, an average amount for a guarantor loan is around 48.9%. When borrowing £2,500 for around 24months, you’d pay back around £3,687.60 altogether. (Borrowing more and paying back less than the payday loan example above).

Banks and Other Lenders – Finally, we’ll look at an average interest rate of around 8%. If you were to borrow around £10,000 over 24months, you’d pay back a total of £10,824 in total. However, these kinds of interest rates are only usually available to those with good credit and a steady income.

Self-Employed Loans

When looking for a self-employed loan, it’s important to know where you stand, regarding your credit history. There are so many websites that will evaluate your credit score for free, and let you know exactly where you stand. Finding out what your credit looks like is essential before taking out a loan. You may find that your credit is better than you thought. Next, comes finding a lender who will let you borrow, despite not having a set income. This is where you’ll need to go over your finances from the past three months. Some lenders will usually take an estimate of what you’ve earned, in order to see if you’ll qualify for a loan. Dependent on your credit, a bad credit guarantor loan may suit you better. It has a fairly low interest rate, in regards toother bad credit loans, and lets you borrow larger amounts of money, without putting up anything as collateral against the loan.

A Personal Loan

Whilst you can use your loan for your business or to finance a new project, a personal loan means it can be used for almost anything, as long as its legal. Whether it be home renovations, debt consolidation or financing a car or a wedding, a personal loan can be used for whatever the borrower sees fit. Most lenders will be interested to know where their investment is going. One of the advantages of guarantor loans is that it can improve your credit history with every repayment. So, if you’re looking to borrow money but improve your credit, a guarantor loan may be the ideal option for you. It all comes down to using the money as you see fit. Whether it be for your own business, or for personal finance – it’s your money, so your decision.

Whatever you use your self-employed loan for, it’s important to know that there are options open to you – despite your credit history. So, landing a loan if you’re self-employed doesn’t have to be all hassle. There are lending options open to you, all you have to do is a bit of investigating.