Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Mahi Sall is the CEO & Founder of FinXpair, a Berlin-based strategic advisory boutique firm focu[...]
Good Reasons Why You Need To Have A Proof Of Income
Jul 26, 2022
Image: Unsplash
Proof of income refers to the documentation that shows your earnings over a specific period. The documents prove that you earn the money you claim to. This kind of documentation is often required by lenders, landlords, insurance providers, credit card companies, and utilities. Before you get a loan, you must provide the lender with certain documents, and they will review them before approving your loan. Keep on reading to learn a few good reasons why you need to have proof of income.
Annual Income Tax Return
Both individuals and companies should pay income tax to the government. When you fill out your income tax return form, you must provide proof of income that determines the tax you should pay. If you operate as a freelancer, your client or employer must send a 1099 form for payments that exceed $600. You must report your income on the tax return to show the money you earn.
Show Capability to Repay a Loan
If you want to apply for a loan, you must provide proof of income to show your capability to repay it. Before lenders approve your loan, they want to know the level of risk you pose which is based largely on your ability to repay the money. You must provide proof of income to get the loan you want. Lenders also check your credit score to determine your eligibility for a credit facility. If you have documents to prove that you earn monthly income, there are high chances that your lender will approve your loan.
Get a Loan
If you want to get an automobile loan, you can generate paystubs that you can use as proof of income. You should know that creating proof of income is easy, and the process takes a few minutes. With the right technology, you will realize that the process is very easy. All you need to do is add the necessary details, and your pay stub will be ready in a short period. Your paystubs can be verified, so you need to provide the correct information to increase your chances of loan approval. You may also need to provide a bank statement to accompany your loan application with pay stubs as a source of income.
Determine Loan Value
When you apply for a loan, your level of income determines the amount of money you can access. For instance, the money you earn determines the mortgage you can get from different lenders. The lender goes through your proof of income to determine the amount of money you can afford to borrow to buy a home. You must also have enough down payment to make when you buy a new home. You must do your research first to see the houses you can afford to get in order to apply for the appropriate loan.
Purchasing Insurance
There are different types of insurance policies available on the market, and they play different roles in our lives. When you apply for a policy, the provider will check your level of income to determine if you can afford to pay the monthly premiums. For instance, when you apply for a health insurance policy, you will get something commensurate with your monthly earnings. Different policies carry varying features which means you may need to pay more out-of-pocket expenses. However, the good news is that you can upgrade your policy if your income increases. All you need to do is to choose something you can afford.
Renting an Apartment
If you are looking for an apartment or other type of property to rent, the landlord will need to check your monthly income to see if you will be able to pay your rent. Besides background checks, landlords use income proof to screen the tenants.
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They also consider other aspects like eviction records and credit scores to determine if you qualify. If you are looking for accommodation, you must choose a place within the range of rentals you can afford.
Image: Unsplash
Proof of income refers to any documentation that shows the amount of money you earn. If you want to apply for a loan, your lender will need to check the money you earn to determine your level of risk. Insurance companies also need proof of income to determine the type of policy you can get. Landlords are also known to perform background checks to screen renters and prevent issues with non-payment of rentals in the future. There are different types of documentation that can be used as proof of income. Paystubs and bank statements are the most common forms of acceptable proof of income.
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