Personal Loan for Self-employed: How to raise money on ITR basis. Details here

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

To take a personal loan, you need to collect an Income Tax Return (ITR) for the last 2 to 3 financial years. You should also ensure that your ITR reflects a consistent and adequate level of income to meet the bank’s criteria.

Eligibility Criteria

Most banks and NBFCs invariably apply the following criteria for disbursing the personal loan:

1. The age must be somewhere between 21 and 60 years.

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

3. Credit score must be 700 or higher.

4. Compare lenders and find 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 for the self-employed. Meanwhile, some banks specialize in assessing profiles of self-employed people and can set flexible requirements.

Some additional requirements

These are some documents that are usually required in addition to 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-sized passport photos.

Important points to keep in mind

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

B. Normally this ranges from 11 percent to 24 percent for personal loans, depending on your risk profile

C. Usually between 1 and 5 years, although some lenders may offer longer terms.

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

Some tips to remember

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

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

4. It is recommended to research about interest rates, processing charges and prepayment charges by banks and NBFCs.

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

Challenges you may face

Despite all this, there are some challenges you may face. One of them is fluctuating income. Banks can scrutinize differences in cash flow over time periods.

Then there may be documentation gaps. One must ensure that all income tax returns are filed accurately and match income returns. Being transparent about your profile and choosing the right bank can increase the chance of quick approval.