This article is for general information only. It is not financial advice and does not recommend a specific lender or product.

Self-employed borrowers can, and do, get personal loans. The process just works a little differently from applying as a PAYE employee.

What do lenders look for from self-employed applicants?

Lenders are required by the Financial Conduct Authority (FCA) to carry out affordability checks before approving any personal loan. For employees, this is usually straightforward: a payslip shows a fixed monthly income.

For self-employed borrowers, income is often irregular or seasonal. That makes the picture more complicated for lenders to assess.

Key things lenders commonly look at for self-employed applicants:

  • Two to three years of Self Assessment tax returns (SA302 forms) or tax year overviews from HMRC

An SA302 is a one-page summary of your income and tax for a given tax year, produced by HMRC. You can download it by logging into your HMRC online account or by calling HMRC directly and requesting a printed copy.

  • Bank statements showing regular income into your business or personal account
  • Accounts prepared by a qualified accountant, if available
  • Proof of ongoing contracts or work, in some cases

If you have been trading for less than two years, some lenders will decline outright, but others do consider shorter trading histories alongside bank statements and contracts. MoneyHelper has guidance on borrowing options if your trading history is limited.

Some lenders are more willing to work with self-employed applicants than others. Checking eligibility using a soft search (a preliminary check that does not leave a mark on your credit file visible to other lenders) before applying can help you avoid a hard search on your credit file.

Why does this matter for the cost of borrowing?

Two loans with the same monthly payment can have very different total costs, depending on the interest rate and how long you repay over.

For example, a £5,000 personal loan repaid over three years at a representative APR of 9.9% would cost roughly £5,788 in total (including interest). The same loan over five years at the same rate would cost around £6,331. A lower monthly payment does not always mean a better deal overall. You can verify these figures using the MoneySavingExpert loan calculator or a similar independent tool.

If your income is variable, lenders may consider you a higher risk and offer a higher rate. At a representative APR of 19.9%, that same £5,000 over three years would cost approximately £6,499 in total, around £711 more than the 9.9% example. Comparing the total amount repayable, not just the monthly figure, is the more useful measure.

Note: the representative APR is the rate advertised by the lender. At least 51% of accepted applicants must receive it, but many borrowers are offered a higher rate based on their individual circumstances.

Does this apply to your situation?

If you are self-employed, a sole trader, a freelancer, or a company director, the process described above is likely to apply to you. Consider a scenario where you have been freelancing for 18 months and want to borrow £4,000 for new equipment: a useful first step is to gather your most recent bank statements and any available SA302 forms, then use a soft-search eligibility checker to see which lenders are likely to accept you before submitting a full application.

If your trading history is shorter than two years, it can help to compare lenders specifically listed as accepting shorter histories, and to have evidence of ongoing contracts ready. If your business costs are high, be aware that affordability checks consider outgoings as well as income, which can affect the amount a lender is willing to offer.

If you are concerned about existing debt before taking on further borrowing, free impartial advice is available from StepChange and National Debtline.

What to read next

For a plain-English explanation of how personal loans work and what to consider before applying, see the Personal loans guide.

To understand what affects the rate you are offered and how interest is calculated, the Loan interest rates guide explains the key terms.

Sources

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