How to Get a Personal Loan Without Proof of Income

What is proof of income?

When a lender underwrites a loan, one of its major focuses is determining how the borrower will pay back the loan. Most people will repay their loan from the income from their regular paycheck. These are verified through forms like pay stubs, bank statements and tax returns. These documents are used to assess a borrower’s ability to repay a loan.

Examples of proof of income

For people with a traditional job and regular paycheck, proof of income is easy since you can supply your pay stubs. However, proof of income is a bit more complicated for contractors, freelancers, small business owners and those who don’t have predictable paychecks.

The following are examples of proof of income that you could use in place of paystubs:

• 1099 forms from clients
• Bank account and investment account statements
• Contracts
• Court order for alimony or child support
• Disability benefit statement
• Dividend and income statements
• Income statement from your business
• Invoices
• Letters from clients
• Pension statement
• Profit and loss statement
• Rental property leases
• Tax returns
• Unemployment receipts

What types of people don't have proof of income?

When you don't have a traditional job, it’s much harder to document your income than it is for someone with a traditional paycheck. The people in this situation generally include:

• Freelancers
• Small-business owners
• Social Security retirement or disability recipients
• Retirees with a pension
• Gig workers
• Workers paid in cash
• Dividend investors
• Rental property owners
• Unemployed workers
• Parents with child support
• Ex-spouses who receive alimony

Pros and cons of getting a loan without proof of income

While getting a loan without providing proof of income can feel like a relief, there can be some downsides. It’s important to take the following into account when deciding the best path for you.

3 ways to get a loan with no proof of income

If you're a borrower without traditional proof of income and are finding it difficult to get a personal loan, you still have some options. Here are some steps you can take to improve your chances when applying for a personal loan.

Research non-traditional lenders

Even though you may have irregular income, that doesn't mean you won’t be able to find a financial institution to lend to you. While traditional banks often focus on people with regular paychecks, other lenders are open to borrowers with alternative income, like rental property owners, small-business owners, self-employed people and retirees. Look for these lenders through online searches, referrals from friends or by talking to your banker.

However, be wary of predatory lenders that specifically target borrowers who can’t verify their income.

"Without a reliable income source, borrowers might resort to predatory lending options with exorbitant interest rates, plunging them deeper into debt,” said Jon Morgan, CEO of Venture Smarter, a consulting firm. “Moreover, being unable to meet repayment obligations could severely damage your credit score, hindering future borrowing opportunities."

Check your credit and consider prequalification

Before applying for a loan, check your credit and consider getting prequalified. You can get your credit score for free through an online bank account, and you can get free copies of your credit reports by going to AnnualCreditReport.com. Getting prequalified can help you check if your self-reported income and credit score meet the lender’s requirements.

Consider adding a co-signer

Adding a co-signer who has a traditional paycheck can help you get your personal loan application approved. The combination of your credit scores, income and assets may be what the lender is looking for to approve your loan. Your combined income provides the lender with confidence that you have the ability to repay the loan without having to liquidate assets.

Even if you could get approved on your own, the co-signer's income and credit score could also help you secure more favorable loan terms. This could lower your interest rate and fees, or secure you better terms.

Secure the loan with assets

While lenders primarily focus on income as a source of loan repayment, sometimes they'll allow borrowers to secure a loan with assets instead. These loans may be secured by your home, vehicle, certificates of deposit (CDs), investments or other assets. If you don't pay back the secured loan according to its terms, the lender will sell or repossess the asset to cover the balance owed.

In some cases, you may receive a lower interest rate with a secured loan versus one that is unsecured. This is because the lender has collateral backing repayment instead of your credit score and paycheck.

» MORE: Best personal loan companies

Other ways to get funds without proof of income

If you can’t get approved for a personal loan, there are other options you could try to get the money you need.

Borrow from friends and family

Friends and family may be able to lend you money without strings attached. These informal loans are often best viewed as gifts, so they don't ruin relationships if you have trouble paying them back. Otherwise, consider setting up a formal loan agreement to establish how and when the money will be repaid and under what terms.

Community-based grants

Many community organizations offer grants to help those in financial need. These grants don’t have to be repaid, but you may owe taxes on the money received. Usually, recipients are eligible for these grants on a one-time or limited-term basis.

Peer-to-peer lending

Peer-to-peer lending networks make connections between borrowers and lenders. The lenders are typically individual investors who put money into a variety of loans. They usually invest small amounts into a variety of loans to reduce their risk against loss. Borrowers receive money from the network, and then their repayments are spread out to the investors who participated in the loan.

Title loan against a vehicle

A title loan against your vehicle can provide quick money at a costly interest rate. These loans are best for short-term borrowing because the interest rates and fees are so high. However, the lender typically doesn’t require proof of income or a credit check. Title loans use the value and equity of your vehicle as collateral to secure the loan.

Margin loan against investments

Brokerage companies and fintech apps may let you borrow against your investments. Margin loans often charge a low rate of interest and don’t require normal credit underwriting. However, be careful with margin loans. If the asset value drops, you could be forced to sell or deposit additional money to bring your account into compliance. Selling assets to cover the loan could trigger a tax bill or lock in a loss on your investments.

Loan against cash value life insurance

Many cash value life insurance policies allow owners to borrow against the cash value. These loans typically don’t require any underwriting, and funds are available quickly. If the loan has not been repaid before the covered person dies, the amount outstanding will reduce the death benefit to their beneficiaries.

Pawn-shop loan

Pawn shops lend against a variety of items based on their perceived value. The pawn shop holds onto your asset until you repay the loan. Typically, you have a set amount of time to repay the loan to buy back your asset before the pawn shop allows others to buy it from its inventory. In other words, the pawn shop will sell your item to someone else if you don't pay back your loan quickly.

» MORE: Best ways to borrow money

FAQ

Bottom line

Many borrowers assume that you need a traditional paycheck to get approved for a personal loan. While some lenders do require proof of income, others will consider alternative criteria for financing, such as assets. Generally, stay away from loans targeting no-income borrowers that offer quick cash but charge high rates and fees or have unfavorable terms. If you can’t qualify for a loan with reasonable terms, consider getting a co-signer or a secured loan, or waiting until your income situation improves.