Officially checking out of the traditional business world and becoming self-employed is truly a thrill. Striking out on your own and being your own boss means running your own schedule, deciding which work you want to take on, and potentially never putting on pants again (hello working from home!).
But every upside must have a down. And a major downer of leaving a traditional 9-to-5 is navigating your personal finances as a sole proprietor. From invoicing, to estimating taxes, it’s all on you—because you’re the boss now.
Qualifying for a personal loan while self-employed could also present some challenges. Self-employed individuals may have a need for a personal loan, but may find it difficult to produce traditional documentation, like W2s or pay stubs, used to verify income.
But fear not, my self-employed friends. There may be options to fit your loan needs after all. But before we get into that, it’s crucial for you to understand exactly what you’re getting with a personal loan.
What Exactly Is a Personal Loan?
A personal loan can be used for any personal expense, including home improvements, a work sabbatical, or consolidating your credit card debt. If you’re considering making a big purchase, like buying an engagement ring, a personal loan can be an alternative to using a credit card, if you don’t have the means to pay the balance off right away.
Whether you’re ready to propose, or you’re trying to build an addition on your house, a low-rate personal loan might be a flexible financing option.
Essentially, a personal loan can be used to cover anything in your, well, personal life. Personal loans are either unsecured, meaning a lender won’t require collateral, or secured, usually by the asset purchased with the loan.
Unsecured loans are usually approved based on the financial standing of the borrower, and typically include their credit history and current income.
Personal loans may be funded in one lump sum, then are paid off with equal payments for a specific period of time. For example, if someone took out a $10,000 loan, which they would receive in one single payment, they could then pay it back in installments of $500 a month until the loan (plus interest) was repaid. Typically, personal loans are paid back within one to seven years.
Why Would Someone Need a Personal Loan?
As we’re sure you’re aware, there are a multitude of reasons someone might apply for a personal loan. Whether you’re looking to consolidate your credit card debt, or you need to finance an addition on your house before welcoming a new baby, a personal loan is an adaptable financial tool. Taking out a personal loan still means taking on debt, though, so you should only consider taking one out if it’s absolutely necessary—and you’re in a financial position to pay it back.
Do a Lot of People Take out Personal Loans?
Go ahead, ask 10 of your friends if any of them have ever taken out a personal loan. Odds are at least a one of them will raise a hand. How do we know this? Well, according to a 2016 Bankrate survey , one in 10 American adults said they were either “very likely” or “somewhat likely” to take out a personal loan that year. And about 13.7 million consumers had a personal loan in 2015 .
Furthermore, according to the Federal Reserve , personal loans at all commercial banks in the United States hit a whopping $1.47 trillion in August. And that number is trending upward.
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How Can I Qualify for a Personal Loan as a Self-Employed Person?
For many lenders, traditional documentation used to verify income includes pay stubs and W2s. However, self-employed people can have some difficulty producing these documents, because they often aren’t W2 employees. Even if you don’t have traditional income verification documents, you may still be able to qualify for a personal loan with SoFi.
You’ll need to prove that you have consistent income, of course, and produce income-related documentation, such as tax or bank statements. But SoFi understands that a full-time job isn’t the only qualifier of financial stability. SoFi will also consider factors like your credit score, education, and whether you have a cosigner.
Loan eligibility depends on a number of additional factors, including your financial history, career experience, and monthly income versus expenses. So go ahead, what are you waiting for? Be your own boss.
Getting a personal loan when you’re self-employed doesn’t have to be a huge headache. Check out SoFi personal loans today.
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