Is there such a thing as payday loans for self-employed people?

Self employed tradesman having morning coffee

More and more people in the UK are becoming self-employed. A combination of factors has led to this rise in the entrepreneurial spirit in the UK. Being self-employed comes with some major benefits but it also comes with a few setbacks. Not least increased difficulties in accessing some financial products, ranging all the way from mortgages to 24-hour loans.

And it’s not just self-employed people that struggle to find payday loans, payday loans for unemployed people are also hard to come by, while student payday loans are also few and far between.

There are a few reasons why lenders are less likely to provide loans to self-employed people, the unemployed, and students, and we will talk about these in this article. We’ll also explore some other options for payday loans for self-employed people as well as some other funding options that might be more suitable for you if you’re struggling to find a payday loan for any reason.

Why might a self-employed person want to take out a payday loan?

Self-employed people are just as likely to need a payday loans as anyone else. After all, most of our borrowers are looking for fast access to cash over a short-term period to help cover emergency costs. Self-employed people may have a less reliable source of income than an employed person with a regular payday.

Self-employed people will often invoice for their services, or run businesses and take a wage. If they take a wage, they may keep this to a minimum to reduce taxation costs and if they invoice for their services, they may have to wait for these bills to be settled by their clients. This uncertainty means that access to cash may be more sporadic for self-employed people.

If you’re self-employed and your car breaks down, or your boiler stops working, and you don’t have enough cash available in your bank account to cover these costs, you may need a payday loan.

Quick Look - Typical payday lending minimum criteria

  • A regular income
  • Full or part-time employment
  • Being over 18 (or 21)
  • Having a UK bank account
  • Having a mobile phone
  • Earning a minimum amount
  • Passing a credit check
  • Having a UK address

Are there payday loans for self-employed people?

In short, yes. Some lenders will consider providing short-term or payday loans to self-employed people. However, longer-term loans, repayable over a longer period of time - such as a year or more, may be easier to come by if you are self-employed.

Why do some lenders avoid self-employed people?

The majority of lenders will need to see proof that a borrower receives an income, of a certain level, at the same time every month. If lenders can confirm minimum levels of regular income, they are reducing the risks involved with lending.

Self-employed people, unemployed people and students don’t tend to have a regular fixed income and therefore, lending to them involves a very high level of risk. Some will still consider lending, but loans will usually come with very high interest rates and strict credit checks to help minimise the risks involved.

Who can get a payday loan for self-employed people?

Self-employed people who have excellent credit records may be able to get short-term loans. Lenders offering loans to self-employed people are likely to look for very good credit records as those with strong credit histories are less likely to have experienced credit problems in the past and have demonstrated that they can handle debt responsibly.

If you have checked your credit rating through a credit agency, such as Experian, and you know it’s strong, you may have a chance of getting a payday loan despite being self-employed. However, you will have to demonstrate that you can afford the repayments. This is because the Financial Conduct Authority (FCA) insists that lenders carry out extensive affordability checks when they provide short-term loans.

Are there payday loans for the unemployed or students?

The FCA brought in tough regulations on the consumer loans market in 2014, which enforced affordability checks on lenders. This means that if you don’t have an income to repay a loan, you shouldn’t be offered the loan in the first place.

Before the FCA took over from the OFT with regards to consumer lending regulation, too many vulnerable people were taking out payday loans, which were repayable in one lump sum on the borrower’s next payday. They were being offered to consumers without the means to repay and sending thousands of people into a debt spiral that very quickly got out of hand.

As a result, unemployed people and students should not take out payday loans and instead could consider one of the following options, but only if they meet the criteria set out by the provider:

Alternatives to short-term loans and payday loans:

Bank account overdrafts

Your bank account provider may consider you for an overdraft even if you are not employed or if you are a student. An overdraft is a line of credit that you pay interest on. The interest is only charged on the balance of the debt, as opposed to the entire overdraft limit.

A guarantor loan

A guarantor loan is a loan that you take out with a close family member or friend who officially agrees to cover the repayments for the loan if you are unable to do so.

Credit cards

Credit cards are difficult to come by if you do not have an income or a good credit record. However, some credit cards might be obtainable for students, newly unemployed, people on zero-hours contracts or self-employed people.

Borrowing from friends and family

This is the lowest risk option, and many people are surprised at how open their loved-ones are to helping them out over a short period in an emergency.

Credit unions

Credit unions are publicly owned and run organisations that provide credit to members who have contributed to the union. If you think you’d like to get involved with a credit union, so that you can take advantage of their loans and other financial products, here's a site that will help you to find your credit union

A word of caution …

It’s true that if you are self-employed people, unemployed, or a student you are just as likely to need emergency loans as anyone else. In fact, you are possibly even more likely to. However, when it comes to taking on debt, affordability is everything. Yes, lenders now need to take steps to ensure you can repay a loan before offering it to you, but borrowers should also ask themselves if a loan is the right way to meet a short-term cost.

If you are self-employed, it might be better to try to wait until you take your next wage, or until that outstanding invoice is paid. Try chasing your debtors for payment and take every measure available to you before resorting to a loan.

Loans will cost you money and can lead to further debt problems if you struggle to meet a scheduled repayment. All lenders will charge you a penalty if you miss payments, or are late making payments - can you afford the extra cost involved and is it really worth the risk?

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