Some people use payday loans when emergency financial situations come up and they have no other options available to access the cash they need fast. Although payday loans often are easier to get than other types of loans, showing proof of employment is the primary requirement. Therefore, you may wonder whether you can qualify if you are self-employed.
You repay a payday loan by having the money deducted from your bank account by the date your repayment is due -- normally when you receive your next paycheck. However, if you don't deposit regular paychecks, the payday lender will want to see other forms of proof that you have consistent payments from self-employment coming into the account.
Steady Bank Deposits
Since the lender looks for a steady flow of deposits, you may not qualify for a loan if your bank statements show only occasional or small deposits. The lender wants assurance that it can draw out the installments you owe to pay back the loan. Payday lenders vary in their requirements, but if you are self-employed, a lender generally requires that you submit your bank account statements showing that you have funds in the account.
When applying for a payday loan, you may need to provide more documentation than a person who is employed by someone else. Keeping careful financial records helps to establish that your business earns a regular income and can give you the funds to pay back the loan. Usually, a payday lender requires that you show pay stubs from the past two weeks when you apply for a loan. However, because you are self-employed, you may need to show that you've had a steady income for longer than that by providing bank statements for at least a three-month period. When requesting proof of income, a payday lender wants to see that your business is likely to continue earning future income.
Some payday lenders ask self-employed individuals to submit a copy of Federal Schedule C -- the tax form you use to report income or loss from a business. Providing a copy of the Schedule C form that you submitted for the most recent tax year shows the lender how much income you made after deducting business expenses. The lender uses this information in calculating your approximate rate of bi-weekly pay.
Although your tax forms show the lender that you bring in enough income to repay the loan, a payday lender may also use your tax information to determine for how much of a loan you qualify. If your business is new or your business income is low, the lender may approve you for a loan but offer you a smaller loan amount than you requested. If you are in a real bind, a payday lender that specializes in payday loans for the self-employed may be more flexible in its lending requirements.
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