If you have a bad credit and you are self-employed, getting a bad credit loan may not be a piece of cake. Credit-challenged individuals without a stable employment are usually turned down by traditional lenders because they do not meet the common requirements such as-verifiable proof of income and professionally prepared tax return, plus a good credit score. They use these requirements as basis of their evaluation of a borrower’s credit worthiness.

Here are some of the important facts a self-employed borrower needs to know when getting a bad credit loan:

  • Each bank has a minimum income requirement and they compute it to check if you can pay off your outstanding loan.
  • The debt to income ratio: Lenders compute the portion of the monthly payment against the monthly income. Your living expenses and all other debts that you will have to pay each month are taken into consideration.

For example, you report an income of $4,000 per month though your actual income is $2,500. But, if your monthly expense is $3,800, the reported income and your actual expenses will not qualify you for a loan. They will also look into your stated income in your tax returns and check if your reported income is the same.

  • Your lender wants the loan paid off. When you apply for a bad credit loan, your lender wants to assess your capacity to back the loan. Therefore, it is normal for the lenders to use a certain criteria that would gauge your ability to pay back the loan to avoid any possibility of getting debt collectors and the courts involved. The lender determines the terms of your bad credit loan depending on your credit history and your income. If you have adequate cash flow to repay the loan, you are a good risk, despite the fact that you have a bad credit history.

In short, regardless of your credit history and the fact that you are not employed, you can still prove your capacity to pay by proving the stability of your income and your capability to pay the loan.  That’s why it is important to show documents that would prove the adequacy of your resources to maintain your payments per month. Your debt to income ratio must also remain low. It’s because you will also find it hard to pay your loan when you have other debts.

You can get loans which is especially tailored to fit your financial needs and help you manage your finances while honoring your commitments. You no longer have to worry about making late payments, or suffering from escalating interests on unpaid debts.