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The Difficulties You May Face With A Self Cert Loan

Aug 17, 2007
Self employment is seen as a risky business when it comes to getting a loan. Self employed borrowers are going to face some difficulties if they are not prepared when they try to get a loan. A self cert loan requires some special documentation in order to prove to the lender the income of the borrower.

Self employed borrowers are seen as high risk. It is because they are not backed by a large companys payroll. The income of a self employed person is not steady and reliable like it would be if they were an employee of a company. The income is not guaranteed, either. Banks see this as risky because there is no guarantee that the borrower will have the money to pay them back.

Another problem with the self cert borrower is verifying the income. If the self employed person does not own their own business, such as the case with an independent contractor then it can be hard to prove income. They will not likely have a paycheck as proof or have a special business account where the income earned can be easily tracked.

Typically for self cert loans a borrower can expect to have to prove their income in a verifiable manner. This is so the bank can have proof of their income and can see just how much the borrower earns.

Additionally, it helps to avoid fraudulent claims about income. The most requested proof is tax returns. Many banks prefer to have two or more tax returns. If the person has other proof they should provide this as well.

The best bet for a self cert loan is a secured loan. With secured loans the borrower has to put up collateral for the loan. If the borrower is a home owner then a home equity loan will be the best bet.

Lenders like secured loans because they are guaranteed to get some of their money paid in any event because of the collateral. However, a self employed person using their home as equity should be very sure they can afford the loan because their home is at risk if they can not.

Getting a self cert loan will be more work than a typical loan. Lenders are going to be cautious and treat this as a risky loan, even if the borrower has exceptional credit. A self employed borrower can expect to have to show more documentation of their income.

They can also expect higher interest rates. Lenders are probably going to tack of fees and treat this as they would a loan for a borrower with bad credit. If the self employed person has rock solid proof of income, such as three or more years of tax returns, they may see a benefit because the bank may be less strict on them with lower fee and rates.

It all comes down to proving income with a self cert loan. The better a borrower can prove their income, the better their loan process will go.
About the Author
James Copper works as a Self Certification Loan Broker for Any Loans who source self cert loans and secured loans for self employed homeowners.
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