| Secured loans for self
employed - "Freedom with responsibility"
The thrill of working for oneself, work on a project from
start to finish, limitless income, making full utilisation
of one’s skills are a few things that propel people
to become self employed. These people might need a loan either
for their personal or for their business need. These loans
are known as self employed loans.
Self employed loans characteristics:
- The profits from the business operations are related
to the repayment capacity of the self employed people
- Regular repayment schedules where borrowers amortise
loan balance through fixed monthly repayments may not be
suitable for the self employed since profits are largely
irregular.
- Insufficient proof of income forms a distinct characteristic
of self employed people. A mainstream lender will want
to see at least 3 years audited accounts as proof that
your business has done well over that time.
- Overpayments, underpayments, and payment holidays are
some of the features of the repayment schedule in case
of the self employed.
- The degree of risk posed by the self employed borrowers
is more. So the APR charged on self
employed loans is more
than the regular loans.
Self employed loans can be either secured or unsecured. The
choice of the type of loan depends on the requirements of
the borrower. Secured self employed
loans are available at
lower interest rates because the loan amount is given against
some security. The security is usually home and real estate.
This type is loan is suitable for taking a larger loan. Unsecured
loans are available at higher interest rates and will not
require any security. Since the interest rates are high unsecured
loans are better suited for taking smaller amount loans.
Advantages of secured loans for the self employed:
- Low interest charge.
- Some lending institutions don’t ask for any accounts.
- No proof of income might be required.
- Loan amount can be used for any purpose.
- Loan amount given is 1-1.5 times of the value of the
collateral.
These advantages come to the borrower because the collateral
clause is satisfied by a secured loan. It pacifies the average
lender and he provides the loan in spite of a lack of regular
income. The collateral can be a house, a car, a property
etc. held by the self-employed person. A diverse spectrum
of professionals like painters, writers, doctors, mechanics,
florists, beauticians etc. take such loans. The profession
of the self-employed is not given much importance in case
of secured loan processing for the self-employed as long
as the collateral satisfies the lender.
However, the credit history of the borrowers carries a lot
of weight for the lenders. Any self-employed
person who offers
sufficient collateral and has a good credit history to supplement
can get a good loan offer within minimum possible time. On
the other hand a borrower with insufficient collateral and
a poor credit history is likely to get a reduced loan with
high interest rates and tougher repayment options.
The drawback of secured loans for the self-employed is that
if the borrower is unable to meet the repayment schedule
and repeatedly defaults on installments, he might loose the
pledged collateral to the lender permanently. So, to mitigate
the risk the borrower should go for the minimum possible
loan amount after considering his repayment capacity and
doing a cash flow analysis.
Taking a secured loan for self-employed could be vital to
the borrower from a personal or business point of view.
The loan amount should be used efficiently and solely to
fulfill the objective of taking the loan. This would ensure
that the borrower does not land himself/herself in trouble
later. So the borrower should enjoy the freedom of taking
a larger loan but do have the responsibility of making
the payments on time.
Brief summary
Self-employed people need a loan either for their personal
or for their business need. The profits from the business
operations are related to the repayment capacity of the self
employed people. Insufficient proof of income forms a distinct
characteristic of self employed people. Overpayments, underpayments,
and payment holidays are some of the features of the repayment
schedule in case of the self employed. Secured self employed
loans are available at lower interest rates because the loan amount is given against some security. The security is usually
home and real estate. This type is loan is suitable for taking
a larger loan. The advantages of secured
loans for the self employed are
low interest charge, no proof of income required, loan amount
can be used for any purpose etc. The profession of the self-employed is not given much importance in case of secured loan processing
for the self-employed. However, the credit history of the
borrowers carries a lot of weight for the lenders. If the
borrower is unable to meet the repayment schedule and repeatedly
defaults on installments, he runs the risk of losing the
pledged collateral to the lender permanently. So, to mitigate
the risk the borrower should go for the minimum possible
loan amount after considering his repayment capacity and
doing a cash flow analysis. The borrower should enjoy the
freedom of taking a larger loan but do have the responsibility
of making the payments on time. |
