When you work for yourself, it can affect your ability to get accepted for some forms of credit.
We’ve put together a handy guide below to help you understand the process of applying for a loan when you’re self employed.
If you’re self-employed, you’re probably only too aware of how this can affect your ability to get accepted for credit. Some lenders may be less willing to let you borrow from them if you don’t have a steady income as they might see you as more of a risk – meaning they could charge you a higher APR or turn you down altogether.
However, you don’t need to worry that you’ll be turned down for every loan just because you are self employed – there are still lenders who’ll accept you. Let’s find out how you can go about getting a loan when you’re self-employed.
When you’re looking to borrow a relatively small amount of money, you’ll probably want to apply for a personal loan. These types of loans aren’t secured against property so they could be suitable if you’re not a homeowner and they’re generally for lower amounts of credit, usually under £5,000.
However, as they’re not secured against any property, this can mean they’re more suited to people with a better history of managing credit – so if you’ve had problems with repaying credit in the past, you might find it harder to get accepted for one of these loans. Whether you’re self-employed or not shouldn’t stop you from getting a personal loan in itself, though keep in mind that different lenders will have different criteria.
“problems like defaults and ccjs usually stay on your credit history for six years...”
If you’ve got a poor history of managing credit as well as being self-employed, you might find that you have a few extra problems with getting accepted for a loan. Some things that can affect your credit history is if you’ve made any credit payments late, if you’ve defaulted on any payments, if you’ve had any CCJs or if you’ve had any insolvencies, like if you’ve been made bankrupt or had a DRO.
This could mean that lenders would be more likely to see you as a risk and think that you might not pay back if you were to borrow from them, so they might be more likely to turn you down. If you find that this is the case, you should look to try and improve your credit history so that you’ve got a better chance of being accepted for a loan.
Problems like defaults and CCJs usually stay on your credit history for six years so if it’s been a few years since you had any issues with your borrowing, it might be worth waiting until they drop off your credit history. However, lenders generally won’t put as much emphasis on problems on your credit history if they were a few years ago but you’ve had no other issues since, so the best way to improve your history is to make all of your current credit repayments on time. For more ways to boost your chances of being able to take out a loan, check our guide on improving your credit history.
Read part 2 of our guide to find out more.