Personal loan for self-employed: What are the eligibility criteria, interest rates, and documents needed?

While availing a personal loan is typically a hassle-free process for salaried individuals given the regular nature of their income, self-employed persons have to go through the rigour of convincing the lender to get the same. Lenders require self-employed persons to have a minimum income, which can vary by location, and the necessary financial documents that show stability of income, to get the loan.

Most lenders require self-employed persons to have a minimum monthly income of ₹15,000. Here are some details about the process banks and NBFCs (Non-banking Finance Companies) follow while providing personal loans for self-employed persons.

What are the eligibility requirements?

Self-employed persons who are in the 21-60 years age category can get a personal loan if they have a monthly income of at least ₹15,000 per month. Some banks require a minimum monthly income of ₹25,000.

Personal loans for self-employed persons are sanctioned based on their monthly income, existing loans, credit history and ownership of property. Though personal loans do not require any collateral, some lenders insist on property ownership details to assess the financial capabilities of the borrower.

Lenders also require self-employed individuals to be in business for a certain amount of time, which varies depending on the location and income generation potential of the enterprise. The annual turnover should also be above the minimum threshold specified by the lenders, which can also vary based on the nature of the business or profession.

A good credit score is absolutely essential for self-employed persons to get a personal loan. Most lenders insist on a credit score of above 700 for sanctioning the loan.

How much loan can be availed, what are the interest rates and repayment options?

Self-employed individuals can avail personal loans that start at ₹50,000, which can go up to ₹40 lakh. Some lenders even offer up to ₹80 lakh as personal loan. The amount of loan depends entirely on your earning potential and repayment capacity. In any case, your EMI should be only 50% of the monthly income and cannot exceed 65%. Lenders charge 10.85% to 24% per annum for these loans. Repayment is in the form of EMIs (Equated Monthly Instalments) that can be between 12 months to 60 months.

What are the documents that are required for getting the loan?

Apart from the regular documents that authenticate the proof of address and proof of identity (Aadhaar Card, PAN Card, Driving License, Passport and Voter ID), you have to provide additional documents to indicate the continuity of your business and steady nature of your income. They include recent bank statements, audited financial statements, tax returns and office lease agreement.

For Income Proof

• Bank statements for the last six months
• Balance sheet and profit and loss account, income computation for two years
• Income Tax Returns (ITR) for the preceding two years
• IT Assessment or Clearance certificate
• Income Tax challans or TDS certificate (Form 16A) or Form 26AS for income declared in ITR

For Business Proof

• License details of the business
• Registration Certificate
• GST Number

Apart from this, lenders may also require you to provide additional documents depending on the type of the profession you practice and your organisational set-up.

What are the other charges?

Lenders typically charge a processing fee, which can be a flat amount or is fixed as a percentage of the loan amount. The processing fee varies with each lender and is usually capped at around 2%-4% of the loan amount. Apart from this, borrowers have to pay stamp duty and other statutory dues that will be different for each state.

Allirajan M is a journalist with over two decades of experience. He has worked with several leading media organisations in the country and has been writing on mutual funds for nearly 16 years.