Applying for a loan with an unsteady income may seem unreasonable for most people in anticipation of the lenders response, however there are ways to successfully apply for a loan, even if you don’t have a consistent income.
Usually, when banks receive an application from customers to establish financial agreements like mortgages, credit cards or loans, they need to make sure that the applicant is financially stable.
In that sense, they rely on documentation that gives them that certainty that the borrower will meet the monthly payments on time.
Therefore, living on an unsteady income may be a big deterrent for banks to lend money, even though having an inconsistent income does not necessarily means that people can not be granted a loan.
For instance, there are people that make most of their salary based on commission, whilst some others work as contractors which constitutes as an unsteady income – but that doesn’t mean that they won’t be able to meet their monthly obligations.
Sadly, banks do consider a consistent income as a major positive when granting a loan. Other factors are also important, such as credit score, but depending on your financial history, this factor may be an enhancement or drawback for your application.
Nevertheless, there are ways to lean the scale in your favour when applying for a loan, even if your paychecks differ week from week.
Get as much financial documentation as possible
People with steady incomes will have a smoother transition during this stage, as they have no problem in proving their income, but it is an entirely different thing if your pay is inconsistent.
When you book the appointment with your lender, make sure that you make all possible efforts to explain the nature of your business. Be as clear as possible so they know that in reality everything is steady and you have the means to back up that loan.
Banks want facts, so gather all the documentation that you can in the form of financial records to show them the other side of the situation.
Getting a recommendation letter from your employer is also a great idea, but just make sure it includes all the information regarding base salary, a record of all income received and an in-depth description of your work duties.
Keep an eye on your credit score
All lenders will take your credit score as the main tool to determine if your loan application is approved. This means it’s important to always have your other financial obligations as a top priority as well.
Being responsible with other loans, credit card payments and being a reliable spender will keep your credit score as high. High credit scores are incredibly appealing for banks and it can compensate not having a steady income.
If you’re focusing on your credit score, it’s recommended that you know your rating through online checks, but be conscious that multiple online checks can have a detrimental effect on your rating.
Save money before applying
If you are applying for a mortgage loan, you can make an additional effort before you go to the lender and start saving to highlight your reliability for repayments.
This will show the lender that you are not just responsible enough to have a solid saving habit, but also it will give them fewer reasons to reject the loan application.
In addition, making a larger down payment will reduce the amount of money that you require from the lender. You can always check for any mis-sold PPI that may remain unclaimed under your name. You can use this money for having a bigger down payment.
Take advantage of all possible income sources
Remember that the idea here is to make the lender see that you have the means to repay the amount you´re requesting, so if you have an unsteady income, it is highly advisable that you rely on all sources of income.
Investment income is accepted, so if you have any, make sure that you have the documents to back it up.
Having an unsteady income should not prevent you from accessing a loan and it is definitely not an impossible task. You just need to have the right documentation that proves how responsible and your capability of handling debt.