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Loans for self-employed people with bad credit aren’t particularly common – or particularly easy to find, for that matter.
As we’ve said before, ‘as a freelancer (or contractor, consultant or self-employed) you’re a bit of a gamble. You have no job security to speak of (at least compared to those in full-time employment), and no regular income if you start to go through a bit of dry spell).’ On top of that, your bad credit rating doesn’t help your situation very much when it comes to appealing to a lender.
But don’t despair – there are loans for self-employed people with bad credit. You just have to know where to look (and think outside of the box a little).
Finding loans for self-employed people with bad credit
The First Step:
If you’re self-employed, before you start to look for a loan, make sure your credit score is in the best shape as it can be.
We’ve spoken about ways to do this before, but take care of the basics first. Make sure you’re registered on the electoral register, that any lines of credit you’re not using are closed and that you’re paying your bills on time.
And after that?
Once you’ve done that, make sure you’re as appealing as possible to the lender.
While people in full-time employment know how much they’ll earn a month (and when it’ll be paid into their accounts), self-employed people don’t have that luxury. Some months earn lots, some months you don’t. Some clients pay on time, some clients take forever and some clients never pay at all.
Banks know this. Lenders know this. And it doesn’t make you a particularly safe bet when it comes to being able to make your repayments every month.
But just because you’re self-employed doesn’t mean you have to be a huge risk. Many people earn more working for themselves than they did working for an employer – that’s appealing to the lender. But the problem isn’t with your earnings; it’s with the regularity, consistency and certainty of those earnings.
Highlight your strengths and mitigate your weaknesses.
What can you do?
For a start, if you have on-going clients or repeat work – make sure it’s documented and agreed to on a legal document (like a contract). As a self-employed person, this is as close as you’ll get to a salary. (If you don’t have these, why not contact your regular clients and get them to write you a letter saying that they plan to use you for the foreseeable future?)
As we’ve also said before: ‘lenders don’t intentionally discriminate against freelancers, but err on the side of caution. If you can demonstrate that you have regular money coming in – even if it’s only a base amount that you top up with one-off projects – then they can see that you will be able to make repayments, even if your one-off work dries up.’
Make sure you gather up all of your invoices, contracts and communications and have them ready. If your lender asks to see proof of earnings or income, these can make a big difference to your chances of being approved.
Even better, if you can get an accountant certificate from your accountant, then these act as proof of income, the Holy Grail when it comes to loans for self-employed people with bad credit.
The safest bet: a guarantor loan
Look, we’re not saying that a guarantor loan is the only option for self-employed people with bad credit. But we believe that it’s the best. (An unsecured loan with a bad credit score and no guaranteed income is going to be much harder to secure than a guarantor loan. Remortgaging your house is a risky strategy – as is any loan that involves putting collateral against up what you’re borrow. And, of course, payday loans are a no-no.)
Having a guarantor for your loan assuages the lender’s idea that you’re a bit of a risk. Your guarantor essentially vouches for you and agrees to pay your repayments should you not be able to. This makes the lender much more likely to lend you the money you need – in their eyes, you’re no longer a risk because of your credit score or your gig-based income.
In the crudest terms, they’re going to get paid either way, which makes them more comfortable lending to you.
And because they can guarantee payment, they can offer you access to better interest rates and repayment options – something you’d never have if you didn’t use a guarantor.
At Bamboo, we offer guarantor loans for self-employed people with bad credit. To see if you’re eligible, why not take our 5-minute eligibility test? If you’re successful, the money could be in your account within 24 hours. (Wouldn’t it be great if your clients paid that quickly too?) (Representative 49.7% APR.) A guarantor may be required.
- Author Jack Barclay
- Posted 18 April 2017