Factors that determine Personal Loan Approval  for Self Employed
Published on : June 17, 2021

You are a young aspiring businessman and You have come across a new idea that would be a good fit for your business. You need a small loan to execute the idea. If this sounds familiar, read on. In small towns, small businesses depend on unauthorised moneylenders for their financing needs. They charge exorbitant interest and there is normally no clear paperwork for the same. These are risky finance options that can prove dangerous in the long run. When easy and convenient personal loans are available why should anyone consider such options?

The example of a loan to expand your business is just one case. You can use the personal loan for any purpose like a medical emergency, your child’s education expenses, a family vacation, a deposit on a house, investment in an IPO or anything that you want to purchase but not pay all at once. You may not want to touch your contingency fund for these expenses. Under such circumstances, a personal loan which is multipurpose in nature is a good option. As it is an all purpose loan you can use it to meet any expense that comes your way. as long as you pay the EMI regularly. Another benefit is that a  personal loan is an unsecured loan which means no collateral needs to be provided.

So, who is eligible for a personal loan?

Any Indian citizen or resident who is over 21 years of age and having a monthly income of over Rs 30,000 is eligible to apply for a personal loan. As long as you fulfil the other loan parameters and have a good credit score, you can apply for a personal loan without any hassle.

How much can I borrow and what is the tenure?

The loan amounts and tenure may vary from lender to lender. At LoanTap, you can borrow from Rs 50,000- Rs 10,00,000 for a period ranging from six months to sixty months.  The interest rate starts from 18% per annum.

How does the personal loan process work?

The entire process is simple, convenient and paperless. All you need to do is to fill an application form on the LoanTap website or mobile app and upload the following documents –

  • PAN card
  • Proof of residence (Aadhaar card/ Passport/Driving Licence)
  • Copy of latest ITR 
  • Copy of GST Returns (where applicable)
  • Last six months bank statement of the main account of the applicant

Once you upload the same, our team  will peruse the application and verify the documents. Once they are satisfied that the documents are in order and the credit score is good they will go ahead and approve the loan.

Self-employed millennials have to ensure that the bank statement reflects the cash inflow on a monthly basis since the lender needs to assess the ability to repay the loan. Submission of the ITR helps  lenders determine the annual income and establish the repayment capacity on the individual. Once the regular inflow of money is established and backed by a good credit score, approval and disbursement of the loan is a breeze. The entire process should be complete in 24-36 hours.

What are the factors that determine the approval?

In case of self employed individuals, the following factors are taken into consideration before approving a loan – 

  • Monthly Income and Annual Income supported by Tax Returns
  • Credit Score
  • Number of debts running concurrently
  • Nature of business
  • Repayment capacity

Monthly Income and Annual Income supported by Tax Returns

In the absence of a salary slip, the Income Tax Return is the verified document used to determine the annual income of a self employed individual . In combination with the bank statement, it can accurately establish the consistency of the cash flow.

Credit Score

Whether you are self employed or a salaried employee, a good credit score is a must for a personal loan. Since the personal loan is an unsecured loan, it is in the interest of the lender to ensure that the borrower holds a good credit score and satisfy themselves that the borrower is capable of repaying the loan on time. A CIBIL score of around 750 is considered good for a personal loan.

Number of debts running concurrently 

Reviewing the bank statement helps the lender  determine the number of EMIs currently being paid. This information is important to determine the fixed monthly  cash outgo. The final amount of loan being approved will be determined by the number of debts being serviced. Ideally not more than 50% of the net salary should be used to pay the EMI.

Nature of Business

The lender would definitely need to assess the nature of the business to determine if it is seasonal in nature. Ideally, they would prefer a business that is in operation throughout the year and generates a monthly income that is greater than the admissible threshold of Rs 30,000 on a monthly basis.

Repayment Capacity

Finally, it boils down to repayment capacity. The lender needs to be completely satisfied that the borrower will be able to meet the monthly EMI commitment. After all, the lender must ensure that the borrower is capable of making the repayments on time. The lender may ask for supporting documents to establish that the cash flow is regular and consistent and the EMI is reasonable enough and not beyond the borrower’s capacity keeping in mind the other expenses and debts.

It is quite a convenient financing option for self employed individuals. If you are interested in exploring the personal loan option for any purpose, you can visit the LoanTap website and explore the options available. Rest easy, a personal loan is just a click away.