You may know that one of the first things banks ask for when you apply for a loan is a pay slip. But what if you don’t get pay slips since you don’t work for a company? Read on to find out how you can apply for loans and get some tips on managing debt as a self-employed worker without a regular income.

You can click the links to read our Guides and learn more about the common loans including:

Home loans
Vehicle loans
Credit cards
Personal loans.

But remember, only take a loan if you need it, to avoid getting into a cycle of debt. Taking on too much debt which you can’t manage can also affect your credit score. You can read more about this in our Guide on credit scoring.

If you’re applying for a loan as a self-employed worker, the process may take longer or you may need to provide more documentation than a regular worker, since self-employed workers usually don’t get monthly payslips which are one of the basic documents financial institutions need to process loan applications. For example, instead of a payslip, banks may ask you for your bank statements as well as any invoices you’ve given to your customers/clients or any agreements signed with your customers/clients to verify the income you’ve been paid.

What you need to know:

Effective interest rates

Effective interest rates (EIR) are the actual interest rate you will pay on your loan after taking into account the loan tenure. Make sure you know the effective interest rate before you apply for a loan because you may end up paying more than you expected. Read our Guide to learn more about the EIR.

You can also calculate the EIR of a flat interest rate loan for personal/hire purchase loans using this calculator and home loans using our home loan calculator.

How the term of your loan affects how much you need to pay

In general, you can reduce the total amount you need to pay by paying off your loans early. The longer your loan tenure, the more interest you’ll have to pay over time. So, if you choose the tenure of a loan properly, you could minimise the amount you’d have to repay for your loan.

In general, here’s how loan and interest repayments work depending on the tenure of common types of loans:

• Hire purchase loans: Higher monthly payments means you can pay off your principal as well as your interest. If you finish paying off the loan early, the bank will give you a rebate.
• Housing loans:The more you pay, the more the principal goes down, reducing the interest you need to pay.
• Credit cards: You should always make sure you pay your bills completely on time to avoid getting into debt, as you get charged interest if you don’t pay your bills on time

However, you may get charged a penalty if you pay off your loan too early. Check with your bank the minimum period you need to pay off your loan, and read our blog to learn more about repaying your loans early.