Kiah Treece is a small business owner and personal finance expert with experience in loans, business and personal finance, insurance and real estate. Her focus is on demystifying debt to help individuals and business owners take control of their fina.
Kiah Treece Loans WriterKiah Treece is a small business owner and personal finance expert with experience in loans, business and personal finance, insurance and real estate. Her focus is on demystifying debt to help individuals and business owners take control of their fina.
Written By Kiah Treece Loans WriterKiah Treece is a small business owner and personal finance expert with experience in loans, business and personal finance, insurance and real estate. Her focus is on demystifying debt to help individuals and business owners take control of their fina.
Kiah Treece Loans WriterKiah Treece is a small business owner and personal finance expert with experience in loans, business and personal finance, insurance and real estate. Her focus is on demystifying debt to help individuals and business owners take control of their fina.
Loans Writer Jordan Tarver Lead Editor, Mortgages & LoansJordan Tarver has spent seven years covering mortgage, personal loan and business loan content for leading financial publications such as Forbes Advisor. He blends knowledge from his bachelor's degree in business finance, his experience as a top perf.
Jordan Tarver Lead Editor, Mortgages & LoansJordan Tarver has spent seven years covering mortgage, personal loan and business loan content for leading financial publications such as Forbes Advisor. He blends knowledge from his bachelor's degree in business finance, his experience as a top perf.
Jordan Tarver Lead Editor, Mortgages & LoansJordan Tarver has spent seven years covering mortgage, personal loan and business loan content for leading financial publications such as Forbes Advisor. He blends knowledge from his bachelor's degree in business finance, his experience as a top perf.
Jordan Tarver Lead Editor, Mortgages & LoansJordan Tarver has spent seven years covering mortgage, personal loan and business loan content for leading financial publications such as Forbes Advisor. He blends knowledge from his bachelor's degree in business finance, his experience as a top perf.
| Lead Editor, Mortgages & Loans
Updated: Apr 10, 2024, 1:41pm
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Most lenders have similar requirements for personal loans, although the specific qualification standards may vary by lender. For example, two lenders might consider your credit score, but one might require a higher credit score than the other. Here are some other common requirements they might consider:
An applicant’s credit score is one of the most important factors a lender considers when you apply for a personal loan. Credit scores range from 300 to 850 and are based on factors like payment history, amount of outstanding debt and length of credit history. Many lenders have a personal loan credit score requirement of at least 600 to qualify, but some lenders will lend to applicants without any credit history at all.
Lenders impose income requirements on borrowers to ensure they have the means to repay a new loan. Minimum income requirements vary by lender. For example, SoFi imposes a minimum annual salary requirement of at least $45,000; Avant’s annual income minimum requirement is just Does not disclose. Don’t be surprised, however, if your lender doesn’t disclose minimum income requirements. Many don’t.
Evidence of income may include recent tax returns, monthly bank statements, pay stubs and signed letters from employers; self-employed applicants can provide tax returns or bank deposits.
Debt-to-income ratio (DTI) is expressed as a percentage and represents the portion of a borrower’s gross monthly income that goes toward her monthly debt service. Lenders use DTI to predict a prospective borrower’s ability to make payments on new and current debt. For that reason, a DTI less than 36% is ideal, though some lenders will approve a highly qualified applicant with a ratio up to 50%.
If you’re applying for a secured personal loan, your lender will require you to pledge valuable assets—or collateral. In the case of loans for homes or vehicles, the collateral is typically related to the underlying purpose of the loan. However, secured personal loans can also be collateralized by other valuable assets, including cash accounts, investment accounts, real estate and collectibles like coins or precious metals.
If you fall behind on your payments or default on your loan, the lender can repossess the collateral to recoup the remaining loan balance.
Though not part of the qualification process, many lenders require borrowers to pay personal loan origination fees to cover the costs of processing applications, running credit checks and closing. These fees usually range between 1% and 8% of the total loan amount, depending on factors like the applicant’s credit score and loan amount. Some lenders collect origination fees as cash at closing, while others finance them as part of the loan amount or subtract them from the total loan amount disbursed at closing.
When it’s time to formally apply for a personal loan, your lender will request documents to confirm everything from your identity to your residence and employment. Here are the most common documents lenders require as part of the personal loan application process.
A loan application is a formal document that lenders require prospective borrowers to complete and submit to begin the lending process. Each lender has its own application, so the specific requirements may vary. In general, though, you’ll need to provide basic personal information, how much you want to borrow and the purpose of the loan.
The format of a loan application may also vary by lender. While there are numerous online lenders that offer a completely online application experience, others may need to discuss your application over the phone before providing a decision. There are also a number of brick-and-mortar banks and financial institutions that require applicants to submit a paper application in-person.
Most lenders require applicants to provide at least two forms of government-issued identification to prove they are at least 18 years old and a United States citizen. This precaution also reduces the threat of identity theft. Acceptable forms of government-issued identification often include:
A lender wants to see that you have the ability to pay back your current debts as well as the new loan. To do this, lenders typically require prospective borrowers to demonstrate their employment history and current earnings as part of the application process. Common forms of income verification for traditional employment include:
Prospective borrowers who are self-employed must instead rely on bank statements, 1099 forms and income tax returns. Some lenders also accept social security, child support and other forms of income to qualify for a loan.
In addition to confirming your employment, most lenders want to know that you have a stable living situation. This may involve providing proof of your address, including a recent utility bill, a copy of your lease or other rental agreement, voter registration card or proof of home, rental or auto insurance that lists your address.
There is no one formula to qualifying for a personal loan—every applicant’s financial situation is different and unique. However, there are rules of thumb and recommendations that can help you improve your chances of qualifying for a personal loan.
Most personal loan lenders review your credit score, credit history, income and DTI ratio to determine your eligibility. While the minimum requirements for each of these factors vary for each lender, our recommendations include:
Because each lender has its own minimum requirements, it’s in your best interest to pre-qualify when possible and confirm with the lender what benchmarks you need to meet.
Pre-qualifying for a personal loan lets you see the interest rates and terms you may receive and be eligible for when you apply. However, these are not guaranteed until you submit a formal application.
During pre-qualification, the lender typically only runs a soft credit check, which has no impact on your credit score. Once you submit the full application, however, they will run a hard credit check, which slightly but temporarily drops your score.
While your pre-qualification offer isn’t set in stone until you formally apply, it’s a handy way to compare potential options from multiple lenders to find the best loan for your situation.
Compare personal loan rates in 2 minutes with Credible.com
Not only is your income a crucial part of the qualification process on the lender’s side, but it’s also essential to your ability to repay your loan. Most lenders require proof of income to confirm your ability to meet repayment obligations. If you don’t have a job or an alternate source of income and can’t afford to take out a personal loan, it’s best to avoid taking on additional debt.
Personal loan denials vary, but the most common reasons relate to your credit score, credit history and income. Prospective borrowers who have poor, damaged or no credit typically find it difficult to qualify for a personal loan. However, even if you have good credit that doesn’t mean you’ll qualify for a personal loan. If your income doesn’t prove that you can afford monthly payments, lenders are generally not willing to take on the risk.
Most personal loans are unsecured loans, meaning the lender does not require collateral. However, if you have limited credit or low income, you may not qualify for an unsecured personal loan. In that case, you can try to apply for a secured personal loan, which requires collateral. Keep in mind that this means the lender could seize your property if you don’t keep up with your payments.
Helping You Make Smart Loans DecisionsGet Forbes Advisor’s ratings of the best lending platforms and helpful information on how to find the best loan based on your credit score.
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Loans WriterKiah Treece is a small business owner and personal finance expert with experience in loans, business and personal finance, insurance and real estate. Her focus is on demystifying debt to help individuals and business owners take control of their finances. She has also been featured by Investopedia, Los Angeles Times, Money.com and other financial publications.
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