Personal loan for self-employed: How can one raise money based on ITR. Details here | Mint

Self-employed individuals can avail of personal loans by providing their Income Tax Return (ITR) documents as proof of income. Banks typically assess their income tax returns (ITRs) to assess their financial stability, repayment capacity, and eligibility.

If you want to procure a personal loan, you need to gather an income tax return (ITR) for the past 2 to 3 financial years. Also, one needs to make sure that your ITR reflects a consistent and adequate income level to meet the bank’s criteria.

Eligibility Criteria

Invariably, most banks and NBFCs have the following criteria for disbursing the personal loan:

1. The age should be anywhere between 21 to 60.

2. The minimum income should be ₹20,000.

3. The credit score should be 700 or above.

4. Compare the lender and seek a loan from the one that offers the best deal.

However, it is important to note that some banks and NBFCs have specific loan products catering to self-employed individuals. Meanwhile, some banks specialise in evaluating self-employed profiles and may have flexible requirements.

Some additional requirements

These are some of the documents which are typically required apart from the income tax return:

1. Bank statements for the past 6 to 12 months.

2. Profit and Loss account and balance sheet/

3. GST registration, business registration certificate, or trade license.

4. PAN card, Aadhaar, Voter ID and passport.

5. Passport-size photographs.

Key points to keep in mind

A. The sanctioned loan amount depends on your declared income, credit score, and bank policy.

B. Typically range from 11 per cent to 24 percent for personal loans, depending on your risk profile

C. Usually between 1 to 5 years, though some lenders may offer longer periods.

D. Pay off existing debts. Maintain a high credit score by ensuring timely repayments.

Some tips to remember

1. If your income fluctuates every month, you need to show consistency in savings or additional sources of income.

3. It is also important to maintain a strong relationship with your bank, as this may lead to pre-approved offers for personal loan.

4. It is recommended to carry out research on interest rates, processing fees, and prepayment charges by banks and NBFCs.

5. One can also check if a bank has already offered a loan to long-term account holders with good transaction history, even with minimal documentation.

Challenges one can face

Despite all this, there are a set of challenges one can face. One of them is fluctuating income. Banks may scrutinise differences in cash flow across time periods.

Then there could be documentation gaps. One should ensure that all income tax returns are filed accurately and they match income declarations. Being transparent about your profile and opting for the right bank can improve the chances of quick approval.