Being self-employed could make borrowing money more complicated. Lenders often prefer people with a consistent, regular salary. This is because it might be easier to evidence a sustainable income source. If you work for yourself, your income may change from month to month which makes it harder to evidence a consistent, reliable income source.
That said, getting a loan while self-employed may still be possible.
In this guide, we’ll explain:
- How you may be able to get a loan when self employed
- The types of loans that may be available
- How to apply for a loan
- What documents you may need
- How lenders may assess your application
- What may be useful to consider before borrowing
Taking out a loan is a big decision. If you need more guidance, you can visit our Help & Advice hub. This article is for information purposes only and is not advice.
Can I get a loan if I’m self-employed?
You may be able to get a loan if you’re self-employed. However, your options could be more limited. You might also need to provide more evidence of your income than what would be asked for if you were employed.
Lenders will usually look at:
- Your credit history
- How long you’ve been self employed
- How stable your income appears
- Whether you can afford the repayments
If you have a strong credit profile and are able to prove regular income, you may be offered similar deals to someone in full time employment. If your income changes often, or you have a poor credit history, you might find it harder to borrow.
What types of loans could be available?
If you’re self-employed, you may be able to choose from several types of loans.
Personal loans
A personal loan is usually unsecured. This means it is not linked to an asset like your home. You borrow a set amount and repay it in monthly instalments (with interest) over a fixed term.
Secured loans
A secured loan is linked to an asset you own, which is usually your home. This may make it easier to be approved because this gives the lender extra security if you cannot repay the loan. However, this also means your home could be at risk if you fall behind on repayments.
Guarantor loans
A guarantor loan involves another person agreeing to cover your repayments if you cannot. This may improve your chances of being approved. However, it could put pressure on your relationship with the guarantor.
Business loans
If you need funds for business use, a business loan may be more suitable. These might be available to sole traders, partnerships and limited companies.
How do I apply for a loan when I’m self-employed?
The process is usually similar whether you’re employed or self-employed.
Get your documents ready
Lenders will need information about your finances and identity. Having everything prepared may help speed up your application.
Check your eligibility
Many lenders offer eligibility checks. These are often ‘soft’ checks, which means they may not affect your credit score. Checking first could help you avoid having applications declined.
Consider your options
Not all loans are the same. You may want to consider:
- Loan amounts
- Repayment terms
- Interest rates
- What happens if you can’t keep up with repayments. This could include fees, damage to your credit score and further action from the lender. For secured loans, your home could be at risk.
- A longer term may reduce your monthly payments. But you may pay more interest overall.
Apply for the loan
Once you’ve chosen a loan, you can complete your application. This is often done online, but some lenders may offer other options. At Evolution Money, our qualified advisers talk you through your unique financial situation and needs. That’s why much of our process is done by phone.
What documents might I need?
Requirements vary between lenders, but you will usually need:
- Proof of identity: Such as a passport or driving licence
- Proof of address: Such as a utility bill or bank statement
- Proof of Income: Such as your tax return or audited accounts, bank statements. These help lenders understand your income and spending
- Business details: This may include your business structure and financial information
Will a loan cost more if I’m self-employed?
Being self-employed does not automatically mean you’ll pay more. The rate you’re offered will usually depend on:
- Your credit score
- Your income
- Your overall financial situation
If your income is less predictable, lenders might see this as higher risk. This could mean higher interest rates or lower loan amounts.
Can I get a loan if I’m self-employed and have a poor credit score?
Whether you are self-employed or not, it may be more difficult to borrow if you have a poor credit score. You may be offered higher interest rates or a smaller loan than you asked for.
A secured loan may potentially help you borrow at a lower rate than a personal loan. However, this isn’t always the case. It also involves using your home as security. You should only take out a secured loan if you’re sure you can keep up with repayments. Otherwise, your home could be repossessed.
What can I use the loan for?
A loan may be used for a range of purposes.
Common reasons include:
- Home improvements, such as a new kitchen or extension
- Buying a vehicle
- Consolidating existing debts into one payment
If you are thinking about consolidating debts, remember that you may pay more over time if the loan term is long.
What should I consider before applying?
Before applying for a loan, it may be useful to consider:
- Can I afford the monthly repayments?
- What happens if my income drops?
- How much will I repay in total?
If you’re unsure whether taking out a loan is the right choice for you, it may help to seek financial advice. Organisations such as MoneyHelper and StepChange offer free, impartial advice.
Consider a secured loan with Evolution Money
If you’re a homeowner, a secured loan may be an option worth considering. At Evolution Money, we offer secured loans from £5,000 to £105,000, with repayment terms from 3 to 20 years. We aim to make the process clear and simple, even if your circumstances are more complex.
You can check your eligibility online. This uses a soft credit check and will not affect your credit score.
All loans are subject to status and eligibility. Terms and conditions apply. Not all applicants will be accepted.
Don’t rush into securing a loan against your home. Falling behind on repayments may put your property at risk of repossession.
Representative 21.82% APRC (Variable)
For a typical loan of £18,900 over 180 months with a variable interest rate of 18.72% per annum, your monthly repayments would be £335.99. This includes a Product Fee of £1890.00 (10% of the loan amount) and a Lending Fee* of £763.00, bringing the total repayable amount to £60,478.00. Annual Interest Rates range between 8.6% to 27.87% (variable). Maximum 50.00% APRC. *Lending Fee varies by country: England & Wales £763, Scotland £1,051, Northern Ireland: £1,736.
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
