Yes, it is possible to get a loan as a freelancer when you go about it the right way. Still, you should expect a bit more complication since you don’t fit conventional lender expectations.
Regardless of this, it certainly is possible to borrow even when you earn in a different way. Not all lenders offer freelancer loans, but many do and you still have many loan options. Let’s take a look at what you should do and how you can increase your odds of approval.
Optimize Your Credit Reports & Scores
When you’re looking for a loan as a freelancer, you’ll definitely want to optimize your credit scores before you apply. Since your income ebbs and flows, every lender will want to see that you earn consistently over time and that you can handle credit well.
Get your free credit reports from all three credit reporting agencies and check them for errors. Correct any problems before you apply for a loan as a freelancer. You want to put your best foot forward and mistakes pop up on credit reports more often than you might think possible. Lenders tend to look at two major factors when they’re making a decision: payment history and credit score.
Your payment history shows how you’ve managed your credit over time. It is the most important factor (35%) used in the calculation of your credit scores.
Your credit scores are a numerical summary of your creditworthiness. The higher the number, the lower the risk and the more likely a lender will give you a loan as a freelancer. All three credit reporting agencies use these scores, as do most lenders.
Fortunately, you may still be able to get a loan online as a freelancer, even if you have less than perfect credit. The trade off is that you will have fewer choices.
Lower Your Debt-to-Income Ratio
Your debt-to-income ratio compares your expenses such as your rent or mortgage payments, car payment, utilities, and other costs to how much you earn. Before you apply for personal loans online, get your DTI as low as possible.
Why? Freelancers generally report a lower income since they deduct as many expenses as possible. While this is a great strategy for reducing your taxable income, it’s not so great when you’re applying for a loan as a freelancer. If you have many debts, your high debt-to-income ratio could be the deciding factor that makes a lender turn you down.
Choose an Approachable Lender
In 2024, there were 76.4 million freelancers in the U.S. and this segment of the population is on the rise. Obviously some lenders welcome this group of earners and will offer a loan to a freelancer, but others only consider those with a regular income. That’s because they consider them less risky. Luckily, that doesn’t mean you can’t get a loan as a freelancer.
Even if you don’t have a W-2 form or pay stub from an employer you can find a loan as a freelancer. Look for a lender or loan broker that mentions they consider an alternative income source. This normally includes freelance or contract workers. At the very least, they won’t automatically turn you down without even considering your application.
Choose the Rights Income Verification Process
Many lenders will ask for additional financial information such as an income statement from an accountant before they’ll consider granting you a loan. However, some lenders rely on income verification through your bank in lieu of this paperwork. Yes, they may ask for more paperwork like your 1099s or your tax returns later, but at least you can find a lender that is willing to work with you.
In the case of electronic income verification, it’s a matter of allowing the lender to get a copy of your bank statement so they can verify your deposits into your bank account. They can’t get access to your bank account or see any of your other banking transactions.
If the numbers you provide in your application form agree with your bank statement, the lender may pre-approve you for a loan as a freelancer. Some lenders may be happy with the information in your bank statement and may not even ask you for anything else.
Pre-Approval Important
If you do choose a lender that uses a traditional application process with a hard credit inquiry – take note. Every time you apply with a lender like this it will lower your credit score for up to two years.
If you choose a lender or broker that uses a pre-approval process, it will not lower your credit score. You can apply for as many loans as you like, even if every one of them says “no” (of course, that shouldn’t be the case).
A good indication of a company using a pre-approval process is when they mention instant approval. This indicates they use automation to review your application and to make a quick initial decision. It also means you know what is going on straightaway.
Explore Your Loan Options
Banks and credit unions tend to have very strict requirements, making it very hard for a freelancer to qualify for a loan. However, online lenders pick up the business that mainstream lenders alienate, including those who want to get a loan as a freelancer.
Luckily, this doesn’t mean you have less options to choose from. You can still enjoy flexible loan options tailored to meet the needs of the freelancer. A loan broker amplifies your choices by connecting you with a multitude of lenders. This includes unsecured and secured loan options as well as loans you can get with the help of a co-signer.
Secured loans are backed by assets such as a vehicle, savings, or other valuables. Their advantage is that they usually have lower interest rates due to the reduced risk. However, if you do not pay a secured loan you could lose your asset.
Personal Installment Loan
One of the most popular choices is an unsecured personal loan. The great thing about these personal loans is that approval rests on many factors including your income, but you do not risk your assets.
Potential uses include emergency and medical expenses, vacations, weddings, and debt consolidation. Most personal loans offer a fixed interest rate and a set monthly payment too making it easy to work payments into your budget.
Still, you’ll want to check the fine print to make sure you’re not paying unnecessary fees or penalties. These can include origination fees for setting up accounts and prepayment penalties for paying more than your scheduled payments. A good lender does not charge these fees, which can amount to thousands of dollars.
Home Equity Loan
If you are fortunate enough to own a home, a home equity line of credit is another option. These loans often offer lower interest rates than many other types of loans and you may get a tax deduction for part of the interest paid. You receive the money as a lump sum and the loan has a fixed term for repayment.
However, a home equity loan is a secured loan. In other words, your house serves as collateral. If you do not pay your loan, you could lose your home.
Line of Credit
If you have good or excellent credit scores, a lender may offer you a line of credit. Your credit score determines the initial interest rate the lender sets. If you have high credit scores, your interest rate could be very reasonable.
Still, the interest rate on a line of credit is variable, not fixed. There’s no guarantee your rate will stay the same as the initial percentage offered. Interest charges begin the moment you withdraw money and continue until you repay the balance in full.
A line of credit is a form of revolving credit that allows you to borrow, repay, and borrow again as needed, up to your credit limit. You can write checks on your line of credit, transfer funds, or withdraw cash.
Be careful though – a line of credit may not be a good choice for you if you aren’t good at controlling your spending. You only pay interest on what you borrow, but it can also be very easy to overspend.
Small Business Loan
As a freelancer you are probably the sole proprietor of your own business since you include your income in your personal finances. As such, it is possible for you to apply for a small business loan for things such as buying equipment or property.
The U.S. Small Business Administration offers micro loans of up to $50,000 for real estate or to pay off existing debt. Other sources such as banks, credit unions, and online lenders offer small business loans too.
Compare Terms & Lenders
One of the easiest ways to compare offerings on a loan as a freelancer is to apply through a broker with a pre-approval process. This gives you access to many lenders, but you only complete one application form and it does not affect your credit scores.
Don’t forget to look at the reputation of the lenders too. Websites such as TrustPilot offer independent reviews from a variety of borrowers, including specific information on what a lender is good at and how they could improve.
Don’t ignore fees either. You shouldn’t pay an origination fee for setting up your account. That’s an administrative cost the lender should absorb. Avoid prepayment penalties by choosing a lender that provides an “open” loan. This lets you pay extra any time you want, without penalty.
FlexMoney Can Help You Get a Loan as a Freelancer
After considering all the options, many people decide that a personal loan is a great fit. It’s flexible, convenient, and there are no surprises since the loan has fixed payments. You can also use it to pay unexpected costs, expenses, or to consolidate debt.
If you’re looking for a loan as a freelancer, FlexMoney USA can help. We offer access to a network of reputable U.S. lenders offering loans ranging between $200 and $35,000. The process is easy and safe and the best way to check what’s available to you in minutes, without lowering your credit scores.
Complete one application form and we’ll find the most suitable lenders for your needs. Apply today and find out how easy it is to get the money you need now.