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Gig work offers the flexibility and freedom to earn income and follow your passions. A personal loan can help you pursue your dreams and cover a wide range of expenses. In some cases, though, being a gig worker can make accessing traditional financial products more difficult.
That said, a personal loan may still be within reach: you just have to know what lenders are looking for and how to prepare. Here’s a look at personal loans for gig workers, what to know about qualifying and how to choose one.
Key Points
• Gig workers are freelancers or contractors who often manage multiple income sources.
• Gig workers can qualify for personal loans by demonstrating a consistent monthly income to lenders.
• Applicants must provide detailed proof of income, such as tax returns and bank statements.
• Compare interest rates, APR, and potential fees when selecting the right loan.
• Improve approval odds by keeping a credit score above 610 and a debt-to-income ratio under 36%.
Who Is Considered a Gig Worker?
Gig workers are often self-employed independent contractors, or freelancers who earn money by taking on short-term projects or ongoing work outside of traditional W-2 employment. Dog walking, driving for ride share companies, online tutoring, or freelance writing or design gigs are common examples of gig work.
To make a full living, many gig workers will take on more than one job at the same time. Others have a W-2 job and take on gig work as a way to supplement their income on the side.
Can Gig Workers Get Personal Loans?
A personal loan is a type of installment loan that can be used for almost any purpose. For instance, you could use one to consolidate credit card debt, fund a new small-business venture, or accomplish home improvement projects. Lenders offer you a lump sum that you then payback each month with interest. Anyone can get a personal loan, though getting a personal loan while self-employed can be a little more challenging.
Challenges Gig Workers Face When Applying
Before approving you for a loan, lenders typically review your financial picture to confirm you have enough steady income to make payments on time. This process may be a bit more involved for gig workers, who may have to prove more sources of income than traditional W-2 employees. That said, lenders regularly approve gig workers who can demonstrate a regular flow of monthly income.
Recommended: Emergency Loans
How to Qualify for a Personal Loan as a Gig Worker
There are several typical personal loan requirements. Lenders will need verification of identity, proof of stable income, and a strong credit history. You’ll need to be a U.S. citizen, at least 18 years old, and provide a government-issued ID such as your driver’s license, passport, or Social Security card.
When you apply for a personal loan, your lender will pull your credit score from one of the three credit reporting bureaus: Experian®, TransUnion®, and Equifax®. Applicants with higher scores are more likely to get approved and are typically offered more favorable interest rates. Those with lower scores may find it harder to get approved, and if they are, they may be offered higher interest rates.
What Documents You’ll Need
All applicants for loans need to prove their income, but for gig workers this can be a trickier process. For gig-worker loans, gather one to two years worth of tax returns, several months worth of personal or business bank statements, as well as 1099s and any W-2s you might have. If you do work through a gig app platform, you can download your payout histories and include those as well.
How to Choose the Right Personal Loan as a Gig Worker
There are several factors to consider when choosing a personal loan. First, only borrow what you need. The larger the loan, the more you’ll typically pay in interest over time.
When comparing options, look closely at both interest rates and APR (annual percentage rate). The personal loan interest rate reflects the cost of borrowing the principal, while APR includes interest and mandatory fees, giving you a more complete picture of the loan’s true cost.
Also consider the loan term, which is the number of months you have to repay the loan. Longer terms usually carry lower monthly payments, but higher interest rates. So these can be more costly in the long run than shorter terms with higher monthly payments and lower interest rates.
Finally, some lenders charge prepayment penalties if you want to pay back your loan early. Check the fine print, and if possible, choose a lender that doesn’t include this restriction.
Tips to Improve Your Approval Odds
There are several levers you can pull to improve your odds of qualifying for personal loans for gig workers.
Lenders will typically look for a personal loan credit score of at least 610. If your score falls below that, it’s worth taking time to try to bump it up. Your credit score is based on your history of making on-time payments, the amount you owe, the length of time accounts have been opened, your credit mix, and whether you’ve been seeking additional credit recently.
To cultivate a good score, focus on paying your bills on time, reducing the amount of debt you carry, and avoiding seeking new credit in the run up to your loan application.
Your lender may also look to see if you have a good debt-to-income (DTI) ratio for a personal loan. This is how much debt you carry (your regular monthly debt payments) divided by your gross monthly income. Lenders typically look for a DTI of 36% or lower, although applicants who are using a personal loan to consolidate credit-card debt may be approved with a higher DTI.
Other Loan Options for Gig Workers
Personal loans aren’t the only options available to gig workers. If you’re looking to fund a business of your own, you might consider a business loan, or even a micro loan to provide working capital or buy inventory, supplies, and equipment for example.
If you just need a quick cash infusion, there are fintech and gig-focused lenders who work around gig workers’ financial situations offering flexible alternatives, even for those with less-than-perfect credit. Before signing with an alternative lender, be sure you fully understand the terms of repayment, fees and interest.
One thing to avoid: predatory lending products, such as payday loans. These may seem like a fast fix, but they often charge exorbitant fees and can trap you in ever increasing cycles of debt.
The Takeaway
A personal loan may fit as a loan for gig workers, it may just take a bit more preparation than for traditional employees. With the right documents, a solid credit profile, and a clear sense of what you need, you will be in a strong position to find the loan that works for you.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
FAQ
What income documentation do gig workers need to apply for a personal loan?
Gig workers should provide as much information about their income as possible, including tax returns, pay stubs, bank statements, 1099s, and W-2s (if applicable). Gig-worker loans can require a bit more documentation than those for salaried workers, but it’s not impossible to get a personal loan as a gig worker.
Can gig workers get a personal loan with bad credit?
It is possible to get a personal loan with bad credit, however it may be difficult and choices may be limited. What’s more, loans to individuals with poor credit represent a greater risk to the lender, so the lender will often charge a higher interest rate to compensate. This makes borrowing more expensive. If it’s possible to wait, it may be worth taking steps to improve your credit score before taking out a loan.
Can you use a personal loan to grow your gig business?
You can use a personal loan to grow your own gig business, but it’s important to read the fine print on the loan agreement. Some personal loans expressly forbid commercial use. Make sure the loan you’re considering allows you to use it for business purposes. And give careful consideration to borrowing money to invest in a business — even if it’s your own. You’ll have to repay that loan, with interest, whether or not the business succeeds.
How does inconsistent income affect your loan terms as a gig worker?
Lenders see inconsistent income as a risk when it comes to gig workers’ loans. As a result, you can expect a lender to offer loan terms that may include a higher interest rate, shorter repayment term, and a lower borrowing limit.
Does applying for a personal loan hurt your credit score?
When you formally apply for a personal loan, your lender will make what is known as a “hard inquiry” on your credit report. This can cause a small temporary dip in your credit score. However, if you manage your loan well, it can ultimately have a positive effect on your credit score.
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