LOS ANGELES – February 8, 2021 – (Newswire.com)
The flexibility and freedom of being your own boss is incredibly appealing. And many people are shifting to working in the gig economy to make that a reality.
Gig economy workers are those who choose to do freelance jobs, often working for many different clients, instead of a single employer. These types of workers may drive for a ride-sharing platform, tutor students, resell items online or many other kinds of contract roles.
By nature of participating in the gig economy, income is diverse, and it isn’t always consistent or guaranteed. But that doesn’t mean that gig economy workers can’t qualify for unsecured loans.
What is an unsecured loan?
Unsecured personal loans, also referred to as personal loans, are not tied to collateral like homes or cars. Since there is no security for the lender, personal loans are typically offered for less money at higher interest rates than a secured loan. Without having collateral as security, lenders may use a borrower’s income or credit score to gauge creditworthiness and ability to repay a loan.
What do I need to qualify for an unsecured loan?
Requirements for an unsecured loan vary per lender. But most commonly, they request to see proof of income, which could be most recent pay stub, bank statement or tax statements.
For individuals who are employed full-time and receive a W-2 at the end of the year, they can often times provide that information to lenders as proof of income.
There is a different set of information you’ll need to pull together to qualify as a self-employed individual with multiple income sources. They may request to see your tax statements, which may include 1099 forms from each of your clients or your tax return from the prior year. You may also be able to use a bank statement or record of client payments.
Tips for gig economy workers to qualify for a loan
Proving income, especially if your work is inconsistent or if you’re new to the gig economy, can be a challenge. To increase your chances of being approved, consider the following tips.
- Only borrow as much as you need for a set purpose: When you apply, some types of lenders may want to know why you’re borrowing. If you have a purpose, like a home renovation, debt consolidation, or medical expenses, lenders may feel more secure in allowing the loan. Taking out a personal loan without a set purpose or for an amount that’s much higher than you’ll need may set off red flags.
- Know your debt-to-income ratio: The ratio of how much debt you’re already paying each month compared to the income you’re bringing in can speak volumes to lenders about your ability to pay. If you already have several debts you’re paying off on a more limited income, it decreases the likelihood of receiving another loan (unless you’re in the market for a debt consolidation loan). A debt-to-income ratio of less than 35% is desirable for most lenders.
- Use your excellent credit score to your advantage: If you’ve been financially savvy and have built up a solid credit score, make sure lenders take that into consideration. It can take years to build up good credit, and it lets lenders know that you have a pattern of repaying debts on time and are likely to continue doing so.
- Get your spending in check: If the personal loan is intended to cover a pattern of overspending, it may be better to reassess spending habits than to take on more debt via an unsecured loan.
Gig economy workers are a group that’s continuing to grow rapidly year over year. And that means lender flexibility for loans will adapt over time. For now, having a handle of all of your income sources and being able to provide your financial details to lenders gives you the best chance of qualifying for an unsecured loan.
Notice: Information provided in this article is for informational purposes only. Consult your financial advisor about your financial circumstances.
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How to Qualify for an Unsecured Loan as a Gig Economy Worker