Why is Proof of Income Imperative from The Lender’s Perspective?
People in the 21st century are very sceptical of each other, even a gesture of kindness done from a pure heart is scrutinised and analysed to find a motive behind it.
With the number of fraudulent activities on the rise today, the ideology “better safe than sorry” has become a way of living.
The same is applicable in our personal lives, and the same is true for our professional endeavours.
Money is also an important consideration when thinking about being cautious. A high proportion of crimes are done to chase the same, so being careful provides us with extra security.
And this is why; businesses who lend money as their primary operation are always imposing several obligations on the borrower to secure themselves and their money.
On such an obligation is the Proof of Income. Let us scrutinise this one together.
What is Proof of Income?
Have you ever applied for a loan? Have you ever noticed that the loan procedures for a businessman and a salaried employee are different?
An individual only needs to present his bank statement or just his salary slips, and a loan would most likely be approved.
However, a businessman needs to present one document on top of the other and can still get rejected.
Have you ever wondered why?
The lender does all of this because he wants to evaluate your income as a borrower. The income evaluation helps the lender know what comes in your pocket every month.
This amount will let him know whether or not you will be able to return the loan on due time through timely payments.
For the salaried employees, the income check is pretty standard. His salary will not fluctuate every month, so the lender can quickly assess the borrower’s repayment ability through the payslips.
It is the businessmen or the self-employed, who pose more threat to the lender. Their income is never stable; one month they might earn enough, and the next they would have barely some to survive.
Such scenarios mandate the lenders to prioritise their proof of income and inspect every minute detail before approving.
Some say that collateral is a better alternative, and it would not be biased as well. I know, it won’t be, but it will have a lot of problems for both the lender and the borrower.
Proof of Income as Opposed to Collateral
Proof of income may be somewhat arduous to fetch and submit, especially for the self-employed, it is still something that every borrower has in his capacity to produce.
However, collateral, which is a form of security given by you to the lender, is not something everybody can provide.
Some people mortgage their homes to get loans, but what about the people who do not own a home?
So, collateral is also not fair to those borrowers, who do have an asset to provide as one.
The lenders also do not benefit a great deal from keeping collateral.
The secured assets do give a semblance of a surety that the repayment would have, but there are still no guarantees.
And when the repayment does not happen, the lender has an asset that may never sell to compensate with the income loss.
Now do you see, that collateral does sound good on paper, but that doesn’t mean it is necessarily practical. The importance of income proof will forever be essential.
Then why is it that many lenders provide credit without proof of income?
Like I have already mentioned above the businessmen, and the self-employed have to put in some extra efforts to get the loan approved by the lenders. These efforts, more times than not, are focused on providing income proof.
What if I told you that there was a way that does not require this much trouble from the borrower. The lender also does not fear as much in giving the loan?
Yes, there is.
- This is a loan that is very short term, hardly a few months.
- This is a loan that is not too exorbitant in value, five grand at most.
- This is a loan that the self-employed can get without any hassle.
- This is a loan that is best suited for small business emergencies.
Yes, this is the credit for self-employed without proof of income. All the features that I just mentioned help the lender keep him on the safer side.
This kind of credit usually levies a higher interest than standard loans, but I think that is also justified from the lender’s point of view.
What do you think about this newest edition in the credit category? Do you think it will be appreciated by the self-employed? I think I will.