In India non salaried individuals including self employed professionals such as freelancers, small business owners, lawyers, doctors among others can all avail personal loans. Still, it is crucial to acknowledge the fact that the eligibility criteria and documentation requirements might differ from those of salaried applicants.
Salaried vs. non salaried individuals
Salaried individuals are those that earn a fixed compensation i.e., income regularly from an employer with benefits such as gratuity, PF, health insurance and job security. Simple examples of salaried individuals are government employees, private employees working in various MNCs, bank employees, government school teachers, professionals working in media organisations among others.
Non salaried individuals are those that are working as freelancers or business owners. They have variable income based on the nature of work or profits, with no fixed monthly pay or standard employment benefits. Their income can fluctuate significantly.
Hence, keeping the above factors in mind, it becomes evident that while non salaried individuals can avail personal loans still the process is often more strict and stringent due to the absence of a fixed flow of income.
Furthermore, financial institutions focus more on factors such as financial capacity, stability, credit scores, income consistency, past default history etc., along with proper documentation to mitigate risk and ensure the loan repayment capacity of the borrower.
Key facts
Here are five essential points self-employed or non-salaried individuals must know before applying for a personal loan in India.
1. Eligibility criteria vary across lenders
Financial institutions and lenders check the applications of self-employed applicants on factors such as income, age, creditworthiness, credit profile, credit scores and business stability. For example, ICICI Bank requires self-employed individuals to be between 23 to 65 years of age, with a minimum of two years in current business along with a total experience of three years. Not only this, a credit score of over 750 is also preferred by the bank to consider lending funds to an applicant.
This clearly demonstrates that eligibility criteria varies from one lender to another. It also depends on the applicant’s credit history and repayment capacity. That is why it is prudent to get in touch with your respective lender and discuss your case before applying for any specific loan product.
2. Minimum income requirements
Now salaried individuals may require a minimum monthly income of ₹25,000. Self employed applicants might also be required to demonstrate a higher level of income. Some banks and lending institutions such as IndusInd Bank stipulate a minimum annual income of ₹4.8 lakhs post tax for self employed persons.
3. Interest rates are generally higher
The interest rates for non salaried employees vary based on their credit profiles along with the policies of the lender. For example, ICICI Bank offers personal loans with interest rates starting from 10.85% per annum several other banks offer different rates. That is why it is prudent to always compare rates across banks to secure the most favourable terms and conditions.
Personal loan interest rates for self-employed applicants
| Banking Institution | Applicable interest rate |
|---|---|
| ICICI Bank | 10.85% – 16.65% |
| HDFC Bank | 10.90% – 24.00% |
| State Bank of India | 10.30% – 15.30% |
| Kotak Bank | 10.99% onwards |
Note: Interest rates discussed above are illustrative in nature and may vary based on the applicant’s credit profile, loan amount, tenure, and other factors. It’s advisable to check the latest rates and terms directly with the respective banks before applying.
4. Documentation requirements
Self-employed applicants need to provide specific documents, including:
- Proof of identity, name and address. For this Aadhaar Card, PAN can be submitted.
- Business proof (e.g., registration certificates, bank statements etc.)
- Income proof, such as Income Tax Returns (ITRs) for the past two to three years.
- Original bank statements showcasing business transactions.
These documents help financial institutions assess the applicant’s repayment capacity.
Note: The required documents discussed above are illustrative only. For the complete list of documents required refer to the official website of your respective lender.
5. Significance of credit score
Last but not the least, a good credit score boosts the possibility of personal loan approvals for non salaried individuals. Most of the banks consider a credit score of 750 or above as favourable for allowing the release of loans. Due to the same, maintaining a healthy credit history by timely repayments and managing debts in a responsible manner is important.
Hence, navigating personal loans as a non salaried borrower requires redefining financial trust, urging lenders to conduct credit evaluation beyond traditional norms, discussing your problems with their respective customer support team and fostering long term relationships with the respective lenders by maintaining a responsible credit profile.
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