Need a personal loan as a freelancer? Here’s what you must know before applying

Freelancing is an increasingly popular way to work because of its flexibility, autonomy, and ability to earn as much as you want. One of the critical hurdles freelancers face is financial stability, especially when it comes to loan financing.

Although freelancers work for themselves, personal loans can offer relief when they need financial assistance, whether personally or for their profession. This article presents information about the requirements, on how to improve eligibility and the loan application process for freelancers.

Why do freelancers need personal loans?

There are many reasons freelancers may be in need of financial support, including:

1. Business growth: Upgrading your equipment, technology, or hiring additional staff.
2. Cash flow management: Maintaining your monthly expenses when your income can be flexible.
3. Emergency expenses: Emergencies such as medical expenses, house repairs, or other unexpected bills.
4. Consolidation: Pay off all your debt with a simple affordable loan.
5. Skills development: Taking post-secondary courses or certifications to increase further employment opportunities.

Eligibility criteria of personal loan for freelancers

• Age: Generally between 21 to 60.
• Stable income: To qualify for a loan, you usually need to prove a minimum monthly income depending on the lender.
• Credit score: Credit score above 700 ensures the highest likelihood for approval.
• Work experience: Follow up proof of responsibility with a steady freelance career of at least two to three years.

Documents required

1. Identity proof: Aadhar card, PAN card, Passport or Driving licence.
2. Address proof: Aadhar card, PAN card, Utility bill, or Voter’s ID.
3. Age proof: Birth certificate, SSC certificate, Aadhaar card or Pan card.
4. Income proof: Salary slip (last 3 months), Bank statement (last 6 months), ITR, or Form 16.

Tips to improve your loan approval chance

• High credit score: Continue to make timely payments on any current loans and credit cards to increase your credit score.
• Steady income: Continue to produce a steady income to demonstrate financial stability and bank statements to show current balances.
• Choose the right lender: Make sure to check out lenders to find one with interest rates, loans, and payments that work best for you.

Cons of personal loans for freelancers

1. High processing fees: Many lenders also re-oblige customers to pay a processing fee which ranges from a percentage of the amount borrowed.
2. High interest rates: Since personal loans are unsecured they attract higher interest rates.
3. Rigid repayment terms: Any kind of advance payment or partial payments could lead to penalties while defaulting EMIs which in turn would deteriorate the financial status of the borrowers.

In conclusion, for freelancers, financial limitations are a thing of the past, due to the reliable and easy options of personal loans to access the funds they need. But you should always keep in mind that personal loan carries higher interest rates and processing fees, which uplifts the overall borrowed amount, resulting in debt burden.

Disclaimer: Mint has a tie-up with fin-techs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.