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5 Personal Loan Requirements – How to Get Approved for A Personal Loan

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Personal loan requirements are prerequisite that can make you become eligible for any personal loan you applying for. Although, this depends on various lenders and their personal requirements, this is why it is very important for you to compare what each lenders want as requirements to make you qualify when you are shopping for the lender that can offer the best rates and terms. These requirements will help you know the qualification you need to meet and the proper loan documents you will need to provide to become eligible as an applicant. 

5 Personal Loan Requirements - How to Get Approved for A Personal Loan

During your application process, there are five major requirements that financial institution or online lenders considers when analyzing your loan applications.

1.  Credit Score   

A borrower’s credit score is one of the major factors a lender will put into consideration when analyzing your loan application. Most lending company may require a minimum score of 600 to qualify for a loan application while some don’t have to consider the credit history of an applicant to issue out loan to them. Credit scores ranges from 300 to 850 and this are determined by the length of your credit history, amount of unpaid debt, and payment history.

2. Income

Lenders take income very serious as a major requirement as a means to ensure borrowers are capable of repaying their loans. However, many lenders do not disclose their income requirement and this requirement also vary by lender. Lenders like Avant imposes $20,000 as annual income requirement before you can be issued a loan while SoFi’s annual minimum salary requirement is $45,000.

To verify your income by your lender, you will be asked to provide your proof of income which includes your monthly bank statement, signed letters from employer, pay stubs, and recent tax returns. For those who are self-employed, you can provide your bank deposits or tax returns. 

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3. Debt-to-income Ratio

Debt-to-income Ratio (DTI) is demonstrated as a percentage that shows the part of a borrower’s gross monthly income that goes towards her monthly debt service. A lender uses a borrower’s DTI to know and analyze the prospective borrower’s ability to make payment or new and current debt. Based on the analysis, if a borrower’s DTI is less than 36%, then it is satisfactory, although some lenders prefers borrowers with a ratio up to 50% for fast approval. 

4. Collateral 

Most personal loans are usually unsecured, which means you do not need any collateral. But if you want to apply for a secured personal loan, then you will have to commit your collateral which include valuable assets like cars, homes, investment accounts, real estates, and even cryptocurrency coins.

Failure to pay back your loan will attract repossession of your collateral by your lender to cover up the remaining loan balance.

5. Origination Fee

In some cases, this may not be a major requirement for you to qualify for a loan. However, many lenders may ask applicants to pay personal loan origination fees. These fees will be used to cover the cost of running the loan application process, processing credit checks and closing. Origination fees usually range from 1% to 8% of the total loan amount. The origination fees charges are dependent on the amount of loan and the borrower’s credit score.

Personal Loan Documents

When you want to apply for a personal loan formally, your lender will ask you to provide some important document to confirm your identity. Below are some major documents lenders will ask you to provide when you want to complete your personal loan application process.

Proof of Identity  

Many lenders will ask you as an applicant to provide at least two forms of acceptable government-licensed identification to show you are above 18 years and a citizen of the United States.  Some of the acceptable government-licensed identification documents include:

  • Driver’s license
  • Military ID
  • Social Security Number
  • Certificate of citizenship
  • Passport
  • Birth certificate
  • Other state-issued ID

Proof of Address

The proof of address documents will be used to verify your employment and to ensure you have a stable living situation that can pay back the loan. Some of the proof of address documents includes voter registration card, recent utility bill, proof of home, rental or auto insurance that lists your address, and a copy of your lease or other rental agreement.

Loan Application

A loan application is a formal document that lenders ask applicants to complete and submit to start the lending process. This loan application requirement and the format vary based on each lender as each lender has its own application process. Generally, you will be asked to provide your basic personal information, the amount of money you want to borrow, and the purpose of the loan.

Some lenders may even discuss the loan application process over the phone before making major decision. Local banks and other financial institutions may ask you to submit a paper application. This means you will apply in-person. 

Employer and Income Verification

Lenders are so much concerned on how you will pay back the loan or any current debt you have. During a prospective borrower’s application process, the borrower by the lenders will be asked to provide her employment history and current income earnings as part of the application process. Some of the income verification documents for employment include;

  • Employer contact information
  • Tax Returns
  • Paystubs
  • Bank statements
  • W-2s and 1099s

Applicants who are self-employed must provide their 1099 forms, bank statements, and income tax returns instead.

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How Can I Qualify for a Personal Loan?

To qualify for a personal loan is dependent on the varying lenders and their requirement. Once you are able to meet some major requirement which puts you on the verge of becoming eligible, then you are good to go. However, your credit score, income, credit history, DTI ratio are some of the requirements your personal loan lenders will use to review your application before you can qualify. The minimum recommendation requirements for becoming eligible include;

  • Steady monthly income
  • DTI ratio less than 3%
  • Minimum credit score of 670

How Can I Get a Personal Loan?

You can get a personal loan by completing the online application process. Once you complete the application, the lender will decide on the same day of application. It is however important for you to check out few things you should do before considering to filling out your application. To apply for your personal loan, you have to consider the steps below to start the application process.

  • Check your credit score
  • Know and decide the amount of money you want to borrow
  • Improve your credit score by paying your current debt and other delinquency
  • Make use of a lender prequalification to compare various competitive rates
  • Submit a formal loan application

What Can I Do if Am Denied?

Your personal loan application can be denied by the lender due to several reasons. It could be that your credit score is too low or your DTI is probably high. Another reason could be that the bank observes that the loan you are bidding for is not something you can repay based on certain factors like your income, unpaid debts, and employment stability.

However, you can improve your chances of getting a loan in the future if your lender denies your personal loan application by taking the few steps below.

  • Request for the main reason your application was rejected
  • Apply for a smaller loan amount
  • Review your loan application for mistakes or inaccuracies
  • Improve your credit score by paying current/outstanding debts
  • Try using a co-signer
  • Increase your income
  • Check for mistakes on your credit report
  • Compare lender requirements

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