Types of Income Sources That are Valid for a Loan Application

One of the most frustrating things for a borrower to ever hear is an explanation of how it is that their hard earned yearly income is not a valid source of employment for the purposes of applying for a loan. Even if the borrower has been pursuing their trade for years, they might not be able to use this trade as a valid income on a loan application.

Simply put, the bank will commonly suggest that your continuing employment is not good enough from their risk-management perspective, and that your career does not establish you as a borrower. Because of the implications of such an insinuation, we need to be sure that we know exactly where our income stands in terms of validity.

The first kind of income that many borrowers are surprised to hear is not valid on a loan application is their pension income. While a retiree sees this as being their dependable income, guaranteed by many years of hard work, many banks will disagree, citing its reliance on market conditions and economic trends. While this sort of argument could really be made about any sort of regular employment income, the lenders draw the line with pensions in most cases, the point at which many retirees will require a co-signer to pursue their loan.

Having just learned that even a stable pension income is not enough to support a loan application, it will not likely come as a surprise to many that self-employment income is equally tricky to use to support a personal loan application. However, because of the way in which so many small businesses require debt financing to support their initial operations, many entrepreneurs are driven to work full time in addition to running their business, if nothing else to prove to the bank that they are capable of paying back their financing.

The last invalid source of income that confuses even wealthier borrowers comes from seasonal employment. While the rational for such a decision might be somewhat obvious when dealing with industries that are particularly volatile, and only capable of hiring during certain unpredictable months, it becomes somewhat counter-intuitive in the trades. Specifically, many trades workers dealing with mining or rigging operations, making $100,000-$200,000 a year while only working during the thawed seasons are often confused when the bank informs them that they require a co-signer.

Regardless of how high the income is, or steady, or how long the borrower has been receiving it for, borrowers need to remember that banks and lenders will always play by their own rules. In order for a personal saver to keep up with their financial and borrowing goals, it is therefore important for them to keep track of exactly what kind of income they are pulling in, and whether or not it is valid on a lending application.