11-05-2012 08:45 AM
In general, do banks prefer person who earns a salary over a person that is self employed?
I guess that really depends on type of work (business for self employed), amount of salary vs. net income of business, etc.
Generally speaking, however, which one do banks prefer for unsecured personal loans?
Additionally, which banks offer unsecured install/line of credit nowadays?
It looks like citi and wells fargo do but bofa and chase do not.
I know it is a credit forum but I thought it is quite related to credit
and you guys are the experts on the matter :d
Thank you for your kind answers, as always!
11-05-2012 09:06 AM
IME, they prefer a salary. I'm a business owner x3. I'm a W-2er on one of those which makes things easy and file Sch C on the other two (LLC and SoleProp). For CCs and small loans, I don't even mention the biz ownership and find it easier to get approved with less paperwork. For the car loans and mortgage, it was a paperwork nightmare and they looked at me much more closely despite income being OK. I'm guessing the thought process is because a W-2 employee is stable whereas a business can be unstable with the high rates of biz failures out there. Also the tax code is written in a way where I can claim a herd of stuff like computer depreciation, cell phone, health insurance, car expenses, etc. whereas that can't generally be claimed as an employee. As a result, business owners tend to have a lower net income and that is an issue for some lenders.
A lot of banks out there still offer unsecured loans and LOCs. IMO, check with a local bank or CU and avoid the big banks.
11-05-2012 09:31 AM
This is a great question. How about if you work as a contractor on a 1099? But its hourly, paid hourly/weekly, like a regular employee? I would think that would be different than being a busines sowner even though its considered self employment.
11-05-2012 04:24 PM
As an example, I too am self employed, but quite often for larger loans, the banks want my business tax returns as well. They are really interested in future/forward cash flow to see where their risk is with you. However, in time with relationships with your banker, it ends up being a few more pieces of paperwork but not really a hassle. I had a great positive after my divorce. None of my banking relationships except ONE would give me an auto loan because of DTI with my child support and rent. He even offered to loan me the money for licensing, taxes, and insurance for one year. Priceless! I paid his bank FIRST every month and three months early. It was the best thing I could do was to make Him look good in front of the Board of Directors.
11-05-2012 06:23 PM
In my experience they prefer you to be employed (government as well since it is easier to track and predict cash flow).
My first bank CC I applied while being employed/salaried and only needed one paper saying: I worked at x company since 00/00/00, make x.xx$ hourly, work x hours per week and get paid weekly/biweekly/monthly. Minimum to get approved was at least 3 months on job and nothing more.
Currently I am helping someone with a mortgage refi (self employed), the mortgage owes about 55% of house value and the refi is to lower payment and interest (from 6.5% to 3%) so they don't have much too lose (owner never had issues paying and was never late), and they are asking last 2 years of tax returns, proof of business and a financial statement.
This is only with big banks, smaller banks are usually more lenient towards self employed, downside is they charge a higher interest rate.
11-05-2012 07:19 PM
I can only tell you about my experience...
I am self employed as an IC and when I went for a mortgage I needed more documentation here and there.
So yes W2 wayyy easier, but SE / IC isn't all that bad either if you are prepared for anything that will pop up
IMPORTANT INFORMATION: All FICO® Score products made available on myFICO.com include a FICO® Score 8, along with additional FICO® Score versions. Your lender or insurer may use a different FICO® Score than the versions you receive from myFICO, or another type of credit score altogether. Learn more
FICO, myFICO, Score Watch, The score lenders use, and The Score That Matters are trademarks or registered trademarks of Fair Isaac Corporation. Equifax Credit Report is a trademark of Equifax, Inc. and its affiliated companies. Many factors affect your FICO Score and the interest rates you may receive. Fair Isaac is not a credit repair organization as defined under federal or state law, including the Credit Repair Organizations Act. Fair Isaac does not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit record, credit history or credit rating. FTC's website on credit.