While tendering in your application for a personal loan, ensure you are acquainted with all the necessary requirements of the financing you are seeking. Different lenders have different specifications about what they need to process your loan. However, most of the lenders accept proof of an income as a primary criterion of evaluation of your repayment capabilities. All financiers have to ensure that their money will be repaid. To minimize risks, they establish their own parameters for eligibility by prospective applicants.
The Need For Proof Of Income
Why should income be included as part of the borrower qualification requirements for a loan? It is meant to establish an overview of the borrower’s financial muscle. The lender wants to use the information provided to assess whether the borrower can repay the finances in the stipulated time. The lender put together the employment information provided and analyze the borrower’s income flow. If it is convincing enough, then other factors will also be considered, including the credit history, the appraisal etc.
All lenders have specific proofs of income. Therefore, what might be acceptable to one is not guaranteed to make the test on the other.
What do lenders require as proof of income? And what should you provide as proof if you are self-employed and do not have a regular income flow? Below are some of the proofs a lender may ask on loan application.
1.) Pay Slips
Pay slips or paycheck is usually provided to you by your employer as evidence of payment. You can use this as evidence of income flow. However, most of the lenders require the applicant to bring a pay slip dated at least 30 days within the date of application. Most recent stubs serve as good proof that indeed you are employed.
These slips other than showing the amount you earn; they also show your employer details and the lender can use this information to dig into what position you hold in the institution you are employed. This helps the lender to ascertain the permanency of your position as well as the average income you will be receiving in the foreseeable future, at least until you finish paying up the debt.
2.) Payroll Schedule
These are documents issued by employers who do not pay the employees regularly, to specify the next scheduled payment. Contractual or freelancing jobs qualify in this category. Therefore, if you are in such an irregular paying job, you can request a payment schedule and present it to your lender to inform them of the planned payment and just how much is available for disbursement to your account. This document gives the lender the affirmation that you can repay the loan since; your account has active funds in waiting.
3.) Official Declaration From The Employer
This is a letter written to your lender by your employer, officially stating that you are an employee of the company. This document serves to prove your income source and how it flows. The lender then evaluates to decide if the information provided is sufficient.
4.) Tax Statements
Several tax forms may be presented to confirm tax remittances; hence, income flow. They include;
5.) Wage And Tax Statements.
These are documents filled and filed by the employer to the tax man showing the employee’s income and the tax withheld in the form of a deduction by the employer and remitted on the employee’s behalf to the taxman. These documents are required to be sent to the respective employee on or before 31st January to facilitate the employee to file and submit the tax returns. When this document is hence after submitted to the lender, it serves as evidence of how much money you make in a year.
6.) Tax Returns.
very eligible citizen is required to submit their annual tax returns, showing how much, they earned over that particular period and how much taxes were withheld or deducted. Therefore, if you are not a company employee, that is, you have your own private enterprises, it is essential to submit your returns to your lender to serve as evidence of income flow. You can also borrow money online since these documents can be printed or sent via the internet.
7.) Bank Statements.
Different statements can be accepted by the lender in loan processing. They include; statements of direct deposits, pension statements, etc.
8.) Statements Are Showing Direct Deposits.
Some employers accept payment plans that are comfortable with the employees. If your payment plan is direct bank deposits, then the statements of deposits will be accepted by the lender. Just like bank slips, these statements should be the most current since they show evidence of payment.
9.) Statements Of Pension Income.
Retirement income statements show if you are registered for the social security payments and qualify for the same. If retired, this document will be used as proof of income flow. The bank statement should, therefore, be able to point out if you are a retirement fund beneficiary and how much is remitted to your account. In addition to the revelation of retirement funds, you should also reveal if you have separate income source other than the fund.
These can be; income from real estate, family business, community work, ownership of a savings account or any other source which is not documented but supplements your money requirements.
In view of the arguments brought forward, it is apparent that for a lender to approve your financing, whether you want to borrow money online on a Sunday, or you are doing it just in the conventional way of going through a host of paperwork, you will be required to provide proof of the ability to repay back the money if approved. And one of the ways is to prove that you have a stable income.
Nevertheless, you are not tied to one lender. The provisions for lending money vary from one lender to the next. Hence if your lender is demanding too much proof, which is not so easy to obtain, consider shopping for financing elsewhere.