Not having a regular paycheck may make getting a loan tricky, depending on the type of loan or lender you work with. However, loan options are available for freelancers, gig workers, and those with less traditional jobs. We’ll break down five of your best loan options.
Why freelancers or gig workers need specialized loan options
When you’re a freelancer or gig worker, your income can fluctuate and may not be as consistent as a W-2 employee. That doesn’t necessarily mean you can’t afford a loan.
However, many lenders want to see a steady source of direct deposit income to determine eligibility. Because of this, contract workers, gig workers, and other independent workers need lenders that have more flexible eligibility requirements and weigh other factors to determine loan approval.
5 types of loans that work for freelancers and gig workers
There aren’t necessarily loans designed specifically for freelancers. Instead, some lenders or loan types may better suit gig workers because they offer more flexible eligibility requirements.
Personal loans
Many personal loan lenders have the typical requirements, one being stable and steady cash flow. But it’s not impossible to secure a personal loan as someone with a less traditional source of income.
During your Search for a personal loan, keep an eye out for personal loan lenders that accept alternative income verification, such as bank statements, PayPal or Square Transaction, or 1099 forms instead of pay stubs. You may also want to consider a secured personal loan, since putting collateral on the line can reduce the lender’s risk and increase your chances of being approved.
Another option is person-to-person (P2P) loans, where you borrow money from other people on an online platform instead of a bank or lender.
Lastly, consider adding a cosigner to your loan. A cosigner can dramatically increase your chance of being approved for a personal loan, especially if you have good credit and strong finances.
Installment loans
Installment loans are short-term loans that typically offer loan terms up to 36 months or less. Short-term loans may come with low APRs and a wide array of loan amounts and terms. However, getting the best terms depends on your finances and credit score, and some lenders charge administration fees.
Some installment lenders, like Avant, invite self-employed and gig workers to apply. But you’ll still need to provide at least two years of tax returns.
Payday alternative loans (PALs)
Payday alternative loans are a great option since we don’t recommend payday loans that charge extremely high interest rates and can easily lead to a heavy debt burden. Some federal credit unions can offer a far better interest rate than what you’ll see with the easy-to-qualify-for payday loan.
PALs offer loans up to $1,000 and have competitive interest rates and more lenient requirements than other types of loans. But, you normally have to be a credit union member for at least 30 days to qualify.
Cash advance apps
Cash advance apps are a quick and relatively easy way to borrow a small amount of cash between paydays. They typically offer loans up to $500 and, in some cases, $1,000 — though first-time users may only be able to borrow a small amount and work up to max limits.
These apps don’t require credit checks, typically don’t charge any interest or late fees and are fairly easy to qualify for. But you’ll still need to meet the app’s requirements. For example, some apps may require you to receive income by direct deposit. And, some apps require a monthly subscription fee.
However, plenty of apps don’t require direct deposit, and a few don’t charge a monthly subscription to get cash advances.
Merchant cash advance
Merchant cash advances (MCAs) are a non-traditional type of business loan that is basically just an advance on your future credit card earnings. MCAs offer loans up to $250,000 or more that you repay in daily or weekly installments, depending on the lender. While they can really help your business get by, MCAs are considered an expensive form of financing.
These loans are best for gig workers or self-employed individuals who run some sort of business with a high volume of credit card sales and can handle the rigorous repayments.
How can gig workers prove income?
As a gig worker, you may be required to submit more financial documentation during the loan application process than an applicant with a traditional job. Requirements vary by lender and loan type, but here is an idea of what you may need to provide:
- 1099s
- Additional income or revenue streams
- Bank statements
- Investment income, if applicable
- Invoices or contracts
- Paystubs, if applicable
- Profit and loss statements, if applicable
- Tax returns
Bottom line
Getting a loan as a freelancer or gig worker may take a little extra effort, but it’s doable. Be it a personal loan, cash advance or even MCA, there are flexible options for non-traditional earners. Be ready to provide a little extra paperwork to show your income and compare multiple options to find the right type of loan for the best deal.