You need a loan because you need money. You apply for the loan and the bank says that they can't approve you because you can't show that you're earning money.
It's one of the great ironies of the lending industry – without money, it's hard to get money. That's because almost every lender asks for proof of income.
What Is Proof of Income?
When you take out a loan, the lender needs to know that you can pay it back. To verify that, they ask you to submit official documents that verify your income. These may include but are not limited to:
- Pay stubs
- W-2 tax forms
- Payroll verification
- Tax returns
Income verification is usually simpler for borrowers who work as employees of a company. The lender can easily verify through the company that the applicant has a steady income and will continue to earn that same amount or more.
Submitting proof of income is a bit more involved for independent contractors and others who are self-employed. The lender has little to no guarantee that your level of income will continue, so they tend to ask for more documentation.
They want to see that you've been making the same amount or steadily more over the past few years, so you'll probably have to submit at least two years of tax returns.
Of course, that's assuming that you've been self-employed and earning for two or more years. If you're newly self-employed or an erratic earner, you don't have many options for proof of income.
Granted, you can get personal loans without proof of income from certain sources. It is significantly more difficult, however, and you'll need to prove yourself in other ways.
How to Get a Personal Loan with No Income Records
The point of income verification is to show that you can repay the loan. If you have no proof of income – or no income at all – you'll need to demonstrate your creditworthiness in other ways.
Putting up collateral
Secured personal loans are designed for people who need cash but have difficulty proving that they can pay it back. As an alternative to proof of income, the originator of a secured personal loan will ask for collateral, which is an asset that the lender can take and sell to recoup its losses if you default.
Common sources of collateral include:
- Real estate
- Investment products
- High-value goods
If a lender approves your secured loan, he or she will offer you a percentage of what your collateral is worth. (It won't be 100 percent.)
Getting a cosigner
Lenders care more about recouping their investments than about you personally paying them. If you don't have proof of income, you could ask someone with a reliable earnings history and good credit to co-sign with you.
Be aware, though – co-signing on a loan isn't just vouching for you. The co-signer is putting his or her name on the loan. If you default, he or she is responsible for paying back what you owe. And if that happens, or if you pay late, it hurts your co-signer's credit score, and that could get in the way of him or her getting a loan in the future.
Before you ask someone to co-sign a loan with you, think of what that might do to your relationship.
Having good credit
If you're not submitting proof of income to your lender, you'll definitely have to show that you have a responsible borrowing history.
Ideally, your credit score will be at least 750 if not higher. Anything from 750 to 850 is usually considered to be “excellent” credit. If you can't quite get there, aim for the higher end of 700 to 749. That's generally thought of as “good” credit, though different lenders will have different benchmarks.
Your credit score reflects what's on your credit report, so events that bring down your credit score are also red flags on your report. These include:
- Late or missed payments
- Accounts sent to collections
- Bankruptcy filings
- Home foreclosures
- High credit card balances
If you have too many of these negatives on your credit report, you'll need to improve your credit score before you look at how to get a personal loan with no proof of income.
Start by paying off your credit cards. Figure out how much you can budget for that each month, pay the minimum on everything, then allocate the rest toward either your smallest debt or your highest-interest debt. The latter lets you pay off individual accounts less frequently with this method, but you end up paying less overall.
Personal Loan Options for Self-Employed Borrowers
If you don't have proof of income, you'll want to focus on alternative sources of lending. For example:
Peer-to-peer lending lets you fill out an application and match with an individual investor. You get a risk rating based on your credit score and that determines your interest rates.
Credit unions operate within a member-owned model. If you belong to the credit union, you can borrow from a pool of money that consists of other members' deposits. Credit unions exist to serve their members, so they tend to be more willing to work with people who have alternative income situations or are temporarily unemployed.
Home equity loans may be available to self-employed individuals or independent contractors, but you'll need very good to excellent credit. If you go this route, expect to pay high interest rates. And be very careful only to take the loan if you're sure you can pay it back, because if you default, you could lose your home.
Get the Money You Need Without Borrowing
Another way to liquidate your home equity is to sell your property, but then you have to find a new place to live. Moving is expensive and time-consuming in the first place and when you add in leaving the home you love, it gets emotional as well.
To help homeowners avoid this trap, EasyKnock has created a program called Sell and Stay. It allows you to sell your home and remain in place as a tenant, paying rent until you're ready to buy back the property or move.
Sell and Stay isn't a loan, so there's no proof of income needed and no risk of foreclosure. You simply get the equity you need – often within 21 days – and you don't have to leave the home you love.
The application process is straightforward and the terms are clear. Break free of the endless loop of needing money so you can borrow money. Contact EasyKnock and find out how you can turn the equity you have into cash you can use!