

Ask HN: Why are lenders allowed to discriminate against the self-employed? - boldpanda


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Alupis
you did not provide any details... but usually it's due to the difficulty you
have in proving a reliable and steady income. It's not "discrimination", it's
viewing you as an unknown and/or higher risk.

When you have a job/career, provided by someone else, you are viewed as likely
to be more stable in regards to your monthly income. Typically your monthly
income is fixed or round-about the same as every month, providing said
stability. This is viewed as lower risk, because they can judge how likely
they believe you are capable of repaying your debt. Yes, you may lose your
job/are terminated, and they take this into account as well, usually by noting
how long you have been employed at the current location, etc. Other factors
contribute to your ability to be take on debt, such as if you own your home or
rent, and how much your monthly payments are, any other existing large loans,
etc.

When you are self employed, it is difficult to gauge the level of stability
you may have. One month may be great, the other not so great. It's also
difficult to prove on paper exactly what you are paid since you are paying
yourself (nobody to vouch for you), and it could be temporarily artificially
inflated with the intent of getting a loan, etc. Being self employed, they may
view you as higher risk also due to your priorities (ie. your business). In
the event you fall on hard times, will you pay the debt back first and
foremost or will you struggle to save your business (because it's the only
method of income). This contributes, along with other factors, to you being
viewed as a higher risk.

I'd wager different types of loans will be more accessible than others, such
as a business loan if you are in fact incorporated or an LLC (I don't know
about sole proprietorships but my guess would be it varies by state/country).
The purpose of the loan will greatly effect you ability to take on the debt,
ie. a personal loan because you just want some new things is not likely to be
granted unless you put of collateral.

Of course, a lot of this depends on the lender and their policies/terms. I'm
not an expert, so if this is a problem for you currently I'd recommend
reaching out to a few different lenders and asking them to explain their
polices.

