If you’ve never taken a loan before or have no idea how these things work, being asked to show proof and documentation while taking a loan can come as a surprise. To explain it in simple terms, these rounds of verification and proof of employment and income are needed by the bank to be assured that the borrower can repay the loan as promised. This may include proving that you have a steady job from where you get a steady income, or if you’re a freelancer or self-employed, you would have to show some proof of how much money you approximately make in a year.
If you’re feeling confused about all the proof and documents you have to put together while applying for a loan, you’ve come to the right place because we’ve put everything you need to know in simple terms in the rest of this article. Let’s get started right away!
Proof of income from your job
As mentioned earlier, the main proof of income that lenders will primarily ask for is proof from your current employer or company, as this will serve the purpose of proving how much you earn in a year and also show them that you have a stable job and can pay back the loan monthly. Here are some of the ways you can get the right documents from your company while applying for a personal loan:
- Pay stubs: Pay stubs are also known as pay slips or paycheques, and you will receive these from your employer each time you’re paid. These will act as solid proof of income, as they will document how much you’ve received and for how long. Your company likely uses software like a pay stub creator to generate payslips for all the employees, so you should also receive them each time you get your salary. If you don’t have any payslips with you at the moment, contact your employer for more details on how you may receive them.
- Payroll schedule: If you happen to work on a contract basis, you may not receive payslips monthly. In such cases, you can submit your payroll schedule to the lenders to prove that you have a job and show them how much you’ve made in the last few months or the last year.
- Letter from your employer: In addition to this, it’s best if you also collect a signed letter from your manager stating that you currently work in the company and mention the date of joining. This is a document that may be asked for by some lenders.
- Bank statements: You can also use your bank statements as proof of income if you’ve set up a direct deposit with your employer.
- Tax documents: This is an important document you will have to obtain before getting a personal loan from any employer. The W-2 tax form is a crucial document, as it will show lenders how much money you made in a year, even if you switched jobs and joined a new place of employment. However, if you’re a freelancer or self-employed, you can use tax returns as evidence to support the income you’ve listed in your application for the loan.
This article went over all the documents you will need to prove your income to lenders when applying for a personal loan. Make sure you’ve got all these documents in place before you begin the application process, as it will speed up the verification process and help you move forward with receiving the loan sooner.