Personal Loan for Contract Employees: 8 Factors Lenders Consider

Nowadays lending (credit card or loan) business is taken very seriously by the banks. Every application is scrutinized in detail in order to avert default in the future, which impacts the profit of the lender. Especially a personal loan application, which is an unsecured loan is taken very seriously by the lenders. In this article, we’ll discuss about personal loan for contract/part-time employees.

The type of job you do sometimes plays a key role in approval of any kind of credit. This includes personal loan as well. Job stability is a key factor checked for each applicant.

There are broadly following types of job categories in India:

  • Permanent – Mostly it is a full time job
  • Part-time – This type of job is typically requires an individual to work for fixed hour. Freelancing is also a kind of part-time job.
  • Contractual – This varies depending on the tenure of the project.

Rise in Contractual Jobs

The rise in popularity of contract-based jobs can be attributed to the flexibility, independence, and variety of work they provide. As business needs and requirements evolve, many companies now offer contract-based employment options.

Although contract-based employment offers numerous advantages, it is commonly believed that contract workers face disadvantages when seeking loans. This is because banks and other lending institutions typically require applicants to have a stable, fixed source of income, such as permanent employees. However, there are some banks, NBFCs, and housing finance companies that do offer loans to contract employees.

When personal loan application of a working professional is under the review process by the lender, the most common factors considered are the income, credit score, and company. However many a times employment status (permanent, part-time, contract) is also taken into consideration before approval.

First Question – Can contract worker get personal loan?

Yes, personal loan for contractual worker is 100% possible. However, contract workers may face more challenges in obtaining a loan compared to regular employees who have a stable income and a favorable credit record, but it is still possible for them to secure one.

So how can employee on contract get personal loan? And what factors will get loan approved for a contractual employee?

There is no rule prohibiting contract employees from obtaining personal loans. Therefore, the approval of the loan is solely at the discretion of the lender.

Listed below are the factors banks take into considering while processing personal loan for a contract employee, although approval is solely on the bank’s decision:

  1. Income: If your income is high, even when you are on contract, then chances are that your loan will get approved. Because higher income means strong chance of loan repayment i.e. credit worthy. Check out loan for low income earners. When evaluating loan applications, banks typically prioritize applicants with stable employment. As a result, individuals with stable jobs often have an easier time securing loans. However, there is a common misconception that those who work on a contractual basis struggle to obtain loans, which is not necessarily true.
  2. Credit history: If your credit score is good, then it further increases the chances.
  3. Company name: If contract is in a big company then it will work in his/her favor.
  4. Debt-to-Income Ratio is a measure of the portion of a borrower’s monthly income that is used to repay debts. It is used by lending institutions to evaluate an individual’s ability to repay both existing and new loans.
  5. Experience: If you are highly experienced and only the current job is contract, then chances are high. Because being on a contract does not mean banks are at risk in granting personal credit.
  6. Employment Tenure: This is very important. If the job contract is for a long tenure then it should not be a worrying factor for the bank. There would be a higher chances of personal loan approval. Typically a job with less than 6 months may go against.
  7. Employment History: If all your previous jobs were full-time then it’s a plus point. However if the part-time job is your first job, then lender will definitely make extra effort to scrutinize your application. In this case, the other factors will help in strengthening your case.
  8. Profile or Designation: If in a contract job, your designation is at a senior level, then chances of loan approval increases. However opposite is the case. For e.g. positions such as “trainee” and “junior” might not impress the bankers.

Long Term vs Short Term Contract

Employees who have long-term contracts lasting one year or more with the possibility of renewal will have a greater ease in securing loans compared to those with short-term contracts lasting 1-3 months.

What if personal loan is still rejected?

Remember it is not the end of the world. There are many other ways for a contract worker to get personal loan as follows:

Peer to peer lending: Relatively a new concept in India, peer lending (also called as P2PL or PTPL) market is booming in India. Recently RBI notified that peer to peer lending companies will be categorized under NBFC.  Advantage of P2PL over banks is that – the interest rate is on a lower side compared to bank and borrower has an option to choose investor and mutually decide on the lending rate. Although PTPL also verifies each and every applicant, the approval chances are high provided borrower meets their requirement, which are no more different than the banks.

Against FD: If you have a fixed deposit with the bank, then you can apply for a personal loan against FD. This is a kind of secured loan. Benefit of taking a credit against FD is that the interest rate would be on a lower side and approval process is not very stringent with minimum documentation.

Against securities: If you have invested in mutual fund, shares, insurance, or bonds then you can apply for loan against securities. The most important benefit is that the interest paid is only on the amount utilized and not on the entire loan amount.

Private money lenders: This should be the last option to try. Because of high interest rate, history of misleading the borrowers, and bad recovery process, they should be avoided as much as possible.

Cash Advance Loan: Can be obtained by contract workers, although the requirements and conditions may differ based on the lender and the specific terms of the contract work. But such loans are highly expensive because of very high interest rate than personal loan and should be considered as a last alternative solution.

So as you can see above, there are multiple ways of getting personal loan for a contract worker.


Hi, I am Nikesh Mehta, owner and writer of this site. I’m an analytics professional and also love writing on finance and related industry. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business. I can be reached at [email protected].

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