Personal loan documents: Key differences for salaried vs self-employed applicants

In any loan, the documentation forms an important part. The documents are required to establish the borrower’s identity, assess their creditworthiness, and for other purposes. In a personal loan, while the KYC documents are the same for most borrowers, the income documents are different for salaried and self-employed individuals. 

In this article, we will understand the various documents required for a personal loan and how they are different for salaried and self-employed individuals.

Documents required for a personal loan

Let us start by listing the various documents that are required for a personal loan. Some of these include the following.

• Duly filled application form
• KYC documents that include a photograph, photo identity proof, address proof, etc.
• Financial documents, etc.

Let us discuss each of these documents.

Application form

The borrower can apply for a personal loan online or the traditional way by visiting a bank branch. These days, most people opt for a digital personal loan as it can be applied for from anywhere. In this case, the individual must fill out the application form online on the bank’s website or mobile App. Along with the online application, the individual must submit a soft copy of the documents.

The other option for the individual is to apply for a personal loan the traditional way by visiting the bank branch. In this case, the individual will have to fill a physical application form and submit it with a photocopy of the documents.

KYC documents

The individual must submit the Know Your Customer (KYC) documents with the application form. The bank needs to collect these documents to comply with the regulatory requirements for the KYC norms. If the individual submits a physical application form, they must affix a passport-size photograph on it. If an online application is being made, a soft copy of the photograph will have to be uploaded.

Usually, the following documents are accepted as identity proof:

• PAN Card
• Aadhaar Card
• Driving Licence
• Passport
• Voter ID Card

For identity proof, from the above list, if you are submitting any other document apart from the PAN Card, you must submit the PAN Card copy also.

Usually, the following documents are accepted as address proof:

• Aadhaar Card
• Electricity bill
• Rent Agreement
• Driving Licence
• Passport
• Voter ID Card

The electricity bill should not be more than 3 months old. The document must be valid at the time of submission. For example, if the borrower submits the Driving Licence, it should not have expired. Similarly, check the validity of the Passport at the time of submitting it.

While the KYC documents are usually the same for most loan applicants, the financial documents are different for salaried and self-employed individuals.

Financial documents

The bank requires a salaried individual to submit the following financial documents.

Salary slips: A salaried individual must submit the salary slips along with the bank statement. Banks usually require the salary slips of the last 2 to 3 months. However, some banks may ask for salary slips of more than 2 to 3 months, as every bank has its own requirements.

The bank uses the salary slip to assess the applicant’s income and arrive at the personal loan eligibility amount. Apart from the monthly salary, the bank considers the other loan EMI(s) (if any), the debt-to-income (DTI) ratio to determine the loan eligibility amount.

If the personal loan application amount exceeds the loan eligibility amount, the bank will offer a lower loan amount or reject the application. Suppose the personal loan application amount is lower than the loan eligibility amount. In that case, the bank will check the other eligibility criteria and decide whether to accept or reject the application.

Minimum tenure with the current organisation: Some banks have a requirement that the individual should be working with the existing organisation for a minimum of the last 1 or 2 years. The requirement is to ensure the individual is steady in the existing organisation. The tenure with the existing organisation can be checked from the salary slip if the date of joining is mentioned on it. If the date of joining is not mentioned on the salary slip, the bank may ask the individual to submit a copy of the appointment letter.

Salary account statement: The bank asks the applicant to submit the statement of the bank account where the salary is being credited. Usually, a 3 to 6 months statement is required, although each bank can specify its requirement. The transactions in the salary account are analysed to understand the applicant’s spending behaviour. The statement gives an insight into how the salary is allocated towards wants, needs, savings, and investments.

The bank statement also highlights if the applicant’s cheque or EMI payment has been returned in the recent past. It reflects the applicant’s credit behaviour.

The above financial documents suffice in case of most salaried individuals applying for a personal loan. However, some banks may ask the individual to submit their Form 16 or Income Tax Return (ITR).

Let us now look at the financial documents required to be submitted by a self-employed individual.

Income Tax Return (ITR): The bank requires the self-employed to submit a copy of their Income Tax Return (ITR). The ITR requirement varies with banks, with some asking for the ITR of the last 2 years, whereas some may ask for the last 3 years’ ITR. The ITR for the last 3 years gives an insight into how the individual’s income has grown over the years.

Bank statement: In the case of a self-employed individual, the monthly income can be uneven. In some months, the income may be high, while in some months, it may be low. The individual may be asked to submit the bank statement of the last 6 to 12 months. The statement helps the bank calculate the average monthly income.

The bank statement also gives an insight into how the income is being spent and how much is being saved.

Business documents: Many self-employed individuals run a business. In that case, the bank may ask for a copy of the business documents, like Registration Certificate, GST filings, profit & loss account, balance sheet, etc. The documents help the bank analyse the business performance regarding revenue growth, profitability, cash flows, debt, etc.

Check the documents required on the bank’s website before applying

We have seen the various documents required for a personal loan for salaried and self-employed individuals. While the above is a general list of required documents, each bank may specify its own requirements.

It is important to check the list of documents required on the bank’s website before approaching them for a personal loan. It helps you evaluate whether you have all the documents in place before applying. Being prepared will help you get the personal loan approved quickly. Also, if you have a pre-approved personal loan offer from a bank where you have an existing relationship, there will be low to no documents required, which may result in faster approval.

Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached at LinkedIn.