Do Banks Give Loans to the Self-Employed?
Banks do give loans to self-employed people; however, the requirements and paperwork are slightly different! While it is a bit more difficult to apply for a loan when you are self-employed, it does not mean that the bank won’t give you the loan.
Banks worry that they are not making enough money, and this is one of the reasons that they ask for constant information and evidence of annual income. Without the evidence, they have no way of knowing if a self-employed person is making enough money to pay their loans monthly.
What do Banks Look For in Self-Employed people?
The best way to increase your chances of getting a loan through the bank is by minimising your debt. It does take time to do this, but it shows lenders that you can be trusted with money and will pay it back.
Self-employed people do not always get consistent pay. This is usually something that banks fear. However, banks look for consistent statements that are high enough to cover living costs, including the new mortgage.
Most of the time, banks will also ask to see tax returns to make sure that an individual has enough money to apply and pay for a loan. This is hard for individuals who have limited time working for themselves.
What paperwork should Self-Employed People Submit to Banks?
Australian banks want proof that you are making enough money to pay them back on time! The proof is usually in the form of two years worth of tax returns and financial statements. However, this is not always possible.
Sometimes, you can get a co-signer with a better financial history, but this may affect your application. Banks also have the liberty to limit the amount you can borrow. For instance, if you only have one year of experience, they may only allow you to borrow 80% of the item it is worth. This also goes for cars, personal loans, and mortgages.