Payday loans for self-employed people are not always readily available.
When searching for payday loans, self-employed people will have a limited choice. Also, many lenders see self-employment as a risk factor.
People that work for themselves often have fluctuating incomes. They might not be suitably considered to be in stable employment. Moreover, they may find they don’t meet a lender’s basic requirements, or that they cannot get a payday loan approved.
What are your options for getting a loan for self-employed?
If you are looking for payday loans whilst self-employed, then you may have fewer options.
Here are our tips for applying for a payday loan in the UK:
Check the lender’s requirements
Your time is a waste if you spend it on applications that have no hope of getting approval.
All lenders have their own minimum requirements.
QuickQuid requires that its borrowers are in employment. They ask for employment details during their application process. They may need wage slips as evidence of income.
Wonga has more suitable minimum requirements. You must be over the age of 18 and will need to live in the UK, have a UK bank account and debit card, and own a mobile phone.
With Wonga, self-employed payday loans are an option.
The lender’s minimum requirements are only a starting point. You will still need to go through affordability assessments, before getting a final decision.
Consider a guarantor loan
Your friends and family members could help you to get a loan.
Guarantor loans are those backed by someone you know. Your guarantor agrees that if you cannot repay your loan, they will make payments on your behalf.
Guarantor loans are not for everyone. You need to be able to discuss your need for a loan with a family member or friend.
You should feel confident that you can repay your debt so that you do not damage the relationship.
Your guarantor should have a good credit rating. Ideally, to maximise your chance of approval, they will be a homeowner.
Someone that knows you well could be willing to back your loan because they know that you have a steady income.
If you have someone that can act as your guarantor, you may be able to get a short-term loan whilst self-employed.
Many guarantor loans have lower interest rates, to reflect the lower level of risk for the lender.
Connect your loan application with your bank account
Some lenders now link to your bank account.
You can provide read-only access to your online banking. This enables lenders to see your bank balance and statements. The lender cannot make any changes.
Lenders may be able to trust you more, if they can see a regular income and that you are not overspending.
These loans may also provide more financial security. Lenders will not attempt to take a repayment if the money is not available in your bank account. If a client or customer pays their invoice late, you will not have any bank fees for repayment requests that have failed.
Use a payday loan broker or comparison site
When you apply for a payday loan through a broker or comparison site, your initial application goes to a portfolio of approved lenders. They will each decide if they can offer you a loan.
If you do not fit the criteria for a specific lender, they will not make you an offer. If you do fit the criteria, you may receive an approval in principle.
You will be able to select the loan that you want, then complete your application with the lender.
As a self-employed person, you may find that payday loan brokers offer a valuable service.
You will not need to visit lender websites, finding the minimum criteria and checking that you tick all the boxes.
You can use one application form to reach out to a range of loan providers, before selecting the most suitable from a list.
Be aware of self-certificated loans
As a self-employed person, you may feel tempted to try a self-certificated loan. These are also known as self-certification loans and are on offer by some brokers.
If you apply for one of these loans, you will not have to prove your income. The figures that you supply are to provide your loan quote, without any verification.
These loans are high-risk forms of finance, typically offered by loan sharks.
Self-certificated lending is banned in the UK.
The ban was introduced because self-certification mortgages led to financial struggles. Many people had overestimated their income. They were then left with unmanageable debt levels.
Homeowners were unable to keep up their repayments. Many lost their homes as a result.
Self-certificated loans were often dubbed ‘liar loans’. Many people used the opportunity to artificially inflate their income figures.
Some borrowers will use self-certification to provide an accurate income figure. Unfortunately, there are many that will over-exaggerate to receive a bigger loan.
Despite the UK ban, there are now some lenders using loopholes. These lenders open their companies in other parts of the world, operating overseas but providing credit to people in the UK.
When applying for a loan, check that you can verify the lender that you are borrowing from. The Financial Services Register is an important place to start, ensuring that you do not end up with an illegal self-certificated loan.
What else should I consider before applying for a payday loan for self-employed?
FCA affordability assessment rules
Lenders need to run through stringent affordability checks. They will need to be sure that you have provided the correct income and expenditure details.f
In most cases, lenders can verify information without extra evidence. In some cases, they will need to request copies of bank statements or payslips.
If a lender guarantees that they will not need extra documents, they are potentially running a scam operation.
Providing false information
When applying for a loan, you have a responsibility to provide correct information.
Have you considered falsifying information when applying for a loan? If so think carefully about this decision.
Affordability assessments are for your own good. They help you to avoid taking out a loan that you cannot afford.
Providing an over-exaggerated income figure may seem like a good idea at the time. It could increase the number of approvals that you receive. But, it is likely to send you into a spiral of unmanageable debt.
Lenders will ask you to confirm that you have provided accurate financial information. If you say that you have, whilst actually stretching the truth, then you may not be protected if anything goes wrong with your loan.
If you are self-employed, then you may have discovered that your options for payday loans are fairly limited.
Lenders must follow strict FCA regulations. They are by law required to run stringent affordability assessments. It is a lender’s responsibility to check that borrowers can afford to make repayments.
As a self-employed person, you are considered to be a high-risk borrower. You are unlikely to have wage slips that you can use as income evidence.
Your bank statements may help, but could not be useful if you are frequently moving money from one place to another.
It helps to have a dedicated business bank account. This will keep your income from self-employment clearly separate from everything else.
Self-employed people are not usually considered to be in stable employment.
Though any company could fail at any time, the pressure is often higher for people that run their own business. Lenders will take this into account when evaluating whether you will be able to meet repayment deadlines.
If you are self-employed, then it may help to know that some lenders will still accept your application. This means that you will not fall at the first hurdle, and will have a chance to provide your income details.
Other lenders will not give your application a chance. Check a lender’s criteria, on their website, before applying.
Loan brokers may be able to help you to find a suitable online loan. They can send your application to many lenders at once. You will have more chance of receiving at least one positive response.
You might also want to consider applying for a guarantor loan, backed by someone that you know.
Guarantor loans have higher acceptance rates. Non-payment losses are often covered by the borrower’s guarantor.
Self-certificated loans can be tempting but usually, come with a host of risks.
Some lenders may provide these loans using loopholes in the rules but will be operating from outside of the UK. You are not protected if anything goes wrong with the loan.
17Otherwise, this type of credit is often provided by loan sharks. They are not operating legally, are not FCA authorised and may resort to harassment and threats.
Before providing any of your personal details online, check the Financial Services Register. Confirm that the lender is fully authorised.