Can you get a personal loan if you are self-employed?

A personal loan can be used for almost any purpose, from debt consolidation to starting a small business. But it can be challenging to qualify for a personal loan when you're self-employed because lenders want solid proof of income before approving a loan application.

The good news is, there are still options for individuals who work for themselves to secure a personal loan. However, you may have to jump through some extra hoops first if that's your work situation.

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What information do you need to apply for a personal loan?

While there are different types of personal loans and individual loan lenders have their own qualifying requirements, most financial institutions will require you to provide a few key pieces of information during the application process. This can include:

• Your personal details, including your name and address
• The amount you want to borrow and your reasons for taking the loan
• Your Social Security number so lenders can check your credit
• Information to verify income
• Your employment details, including who your current employer is and how long you've been on the job
• Details about other outstanding debt, including loan balances and monthly payments

Lenders consider this information to determine if, as a self-employed applicant, you're a well-qualified borrower and to assess the risk of loan approval.

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How do I provide proof of income when I'm self-employed?

If you are self-employed, you may not have traditional financial statements like pay stubs or W-2s to provide proof of income. And you may not have a company you work for that can verify your employment status. As a result, your lender will ask for other proof of income. This can include:

• Two years of tax returns, including your Schedule C and Schedule SE that provide more insight into business income and obligations
• Bank statements
• 1099s from companies that paid you over the past two years

Depending on how consistent your earnings are, personal loan lenders may not give you credit for all the income you earned as a self-employed individual. This can affect the loan amount you're able to borrow.

In general, the longer you've been self-employed with a steady income, the better your chances of qualifying for a personal loan when you work for yourself.

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How much should I borrow?

Whenever you apply for a personal loan, you should borrow the minimum amount you need to accomplish your personal finance goals. If your aim is debt consolidation, for example, then borrow just enough to pay off the existing credit cards or loans.

Remember, the more you borrow, the higher your monthly payments will be and the more difficult it will be to repay your loans. You can use a personal loan calculator to see how high your monthly payments would be with different loan balances.

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Tips on getting a personal loan

Whether you're applying for a personal loan for an emergency, home improvement project or another reason, you'll want to take a few key steps to maximize your chances of getting your loan application approved. To do that:

• Aim to improve your credit score by repaying other debts before applying for a personal loan and ensuring you don't miss any payments or apply for too much new credit at once.
• Avoid changing jobs or reducing your income right before applying for your personal loan.
• Compare personal loan lenders to see which offers the best rates. Try to shop around with at least three different personal loan lenders as there can be a lot of variation in rates and terms.
• Get pre-qualified for a personal loan before you move forward with borrowing, so there won't be any surprises in terms of the rates you're eligible for.

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