Requirements for a Personal Loan
In the right circumstances, a personal loan can be a great option for people in need of quick cash — be it for debt consolidation, a big vacation, medical bills, home renovations, or nearly any other major expense.
However, before you start shopping for lenders, it’s important to understand the requirements to be approved for a personal loan. While requirements vary from lender to lender, we can take a look at some basic guidelines to give you a good idea of whether or not you might qualify.
Let’s take a look at what you should know about qualifying for a personal loan.
What are the Requirements for a Personal Loan?
If you’re interested in applying for a personal loan, be sure to understand the basic requirements before moving forward.
As mentioned above, every lender will have its own requirements, so you’ll have to check with your lender for specific numbers.
That being said, there are a few major factors that all lenders look at: credit history, income, and debt-to-income ratio.
By far, the most important thing most lenders look at is your credit score. A low credit score signals that you’re a risky borrower, while a high credit score indicates that you are a reliable borrower who consistently makes payments on time.
In most cases, you’ll need to have a credit score of at least 640 to qualify for financing with a reasonable interest rate and terms.
If your credit score isn’t high enough to qualify, you might consider adding a cosigner, or postponing your application until you are able to build up your credit score.
Income & Debt-to-Income Ratio
Aside from your credit score, lenders will also take a look at your income and debt-to-income ratio.
You’ll need to be able to provide bank statements, proof of employment, pay stubs, or other forms that prove you make enough money to cover your payments for the entire term.
Lenders will also look at your debt-to-income ratio, a number that tells lenders how much of your income goes towards outstanding debts. Generally speaking, a debt-to-income ratio of 35% or lower, lenders will likely see you as an eligible applicant.
Once you’re sure you meet the requirements and are ready to start shopping for a personal loan, be sure to compare rates, terms, and eligibility requirements from multiple lenders to ensure you are able to find the best option for you.
Based on a $10,000 loan, excellent credit score with a 14% interest rate on a 1 year term