Personal loan requirements vary lender. But there are some requirements that are very common. Most lenders decide on a loan based on these factors. So before applying for a personal loan, make sure that you can fulfill these requirements. Only apply for a loan if everything is ok otherwise you may be rejected.
Personal Loan Requirements
Credit Score and History
The most influential factor in obtaining a personal loan is the credit score and history of the borrower. The lender thoroughly analyzes the credit report of the borrower before granting the loan.
There are some factors such as the payment history of the borrower, the amount of debt owed and the length of credit history. Considering these factors, if the lender thinks that the borrower is eligible for the loan, then the loan is granted.
Usually the credit score is 300 to 850. If someone’s credit score is 690 or higher, he can easily get a loan. The interest on his loan is also somewhat lower. Because lenders feel safe to lend to them. However, to qualify a loan, a minimum score of around 600 is required. However, lenders can give you a loan with a bad credit score. It is the sole prerogative of the lender.
The lender will want to know about the borrower’s income before granting the loan. Most lenders impose a minimum annual salary. It varies by lender.
For example, the minimum income required for a personal loan is $24,000 at Citizens Bank, $45,000 at SoFi, $20,000 at Avant.
You may have to submit recent tax returns, monthly bank statements, pay stubs as proof of your income.
Debt-to-income ratio is another personal loan requirement. The lender will check your credit score and income as well as the debt-to-income ratio. How much of your income is spent on monthly debt service it is known through debt-to-income ratio. It is expressed as a percentage.
This gives the lender an idea of your ability to repay the loan. Those with a DTI of less than 36% are considered ideal borrowers. In this case, borrowers can easily get a loan. If you have more than that, you may have trouble getting a loan. Because having higher DTI ratios means the borrower has a risk in repaying the loan. Those who are highly qualified are different. Even if their ratio is higher, they can get a loan.
DIT Formula = monthly debt payments/ monthly gross income
When a borrower applies for a secured loan, he has to keep the car, house or any valuable assets with the lender as collateral. In return the lender will lend him. If he repays the loan within the stipulated time, the pledge with the lender will be returned to him. And if he fails to repay the loan, the lender will confiscate the assets.
However, there is no need to keep any collateral in unsecured loans. Which means you don’t have to lose any assets if you fail to repay the loan. But you will get a financial penalty and it will have a negative effect on your credit score.
If you have less-than-stellar credit you can use Cosigner to get personal debt. Cosigner is a person who has a very good credit score and is willing to take on the responsibility of repaying your loan. If you are unable to repay the loan, the Cosigner will repay the loan. If Cosigner’s credit score is very good then you will get loan at low interest rate.
When choosing a Cosigner, look for someone who is very familiar and trustworthy. Because if for some reason he refuses to bear the liability of the debt, you will be in danger.
Many lenders impose a fee on the borrower to process the application and verify the credit report, which is called the origination fee. The origination fee is usually 1% to 8% of the total loan. If you apply for a $10,000 loan, your origination fee will be between $100 and $800. Again, it can be a flat fee.
Many lenders exclude it from the total loan amount disbursed at closing. This means that the money that will be spent as the origination fee will be paid to you.
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Personal Loan Documents Requirements
When you go to apply for a personal loan, you have to apply according to a certain rule. Some formal documents need to be presented along with the application
The borrower has to apply for personal loan in a specific form. It includes much personal and financial information.
For example, Birth Date, Phone number, Social security number, Home Address, Property Ownership, Marital Status, Place of Work, Job Title, Years Employed, Monthly Net Income, bank account, loan details and more.
Each lender may request different types of information. Borrower has to submit the application mentioning the information they want. Most banks and financial institutions accept applications through online. Again some financial institutions require handwritten applications.
Proof of Identity
You must prove that you are a U.S. citizen and you are 18 years old. To prove your identity, you need to submit government-issued identification card with the application. Documents you may need to submit to prove your identity –
- Driver License
- Certificate of citizenship
- Social Security Number
- Birth certificate
They will not ask you to submit all of these documents. They may ask for one or two of these.
Income Verification is one of the processes of granting personal loan. Because through income verification the lender gets a clear idea about the ability of the borrower. The lender will ask you for some documents for income & employment verification.
The most common documentation for proof of income verification includes:
- Bank Statements
- Copy of last year’s federal tax return
- Wages and tax statement (W-2 and/ or 1099)
For self-employed person
- Bank statements.
- Income tax returns.
Proof of residence
Lenders may want to verify your address as a final step in personal loan processing. You may be asked for some documents, such as –
- Voter registration card
- Valid Driver’s License
- Rental or auto insurance
- Property Tax Receipt.
- Posted Mail with name of applicant.
- Utility Bill.
- Lease Agreement.
- Insurance Card.
- College Enrollment Papers.
What to do If your loan application Is rejected?
If you apply for a loan, there is no guarantee that they will accept your application. You will not get a loan unless the lender thinks you are eligible for a loan. What do you do if they reject your application? You must find out the reasons for refusing the loan application. If you can’t find the right reason, you won’t have the courage to apply for a loan from another lender again. Your confidence will decrease.
Steps you can take –
- You can ask the lender why your application was rejected. It is hoped that the lender will explain the exact reasons to you.
- You need to check if you have made a mistake somewhere in the loan application process.
- If your credit score is low then you need to plan how to increase it. The reasons why your credit score has dropped need to be identified.
- If the loan application is rejected due to an error in the credit report, it has to be rectified.
- The lender wants to know about your job, investment and other sources of income before lending. Through these factors lender measure your eligibility for a loan. So try to find out if the lender has any problem verifying these.
- If your debt-to-income ratio is too high, you will not get a loan. So before applying for a new loan, reduce your DTI ratio by repaying your outstanding loan.
- Use collateral if your application is rejected due to low credit score. You can apply for a new loan by mortgaging assets equal to or more than the amount you want.
- Get a co-signer who has a very good credit score.
- You can reapply for a smaller amount than the amount you want to get as a loan.
How to qualify for a personal loan?
To get a personal loan, you first need to find a lender. Once you have found a suitable lender, you need to apply for a personal loan. After you apply, the lender will verify your application and decide to lend to you. Some things can help you get a loan.
Raise your credit score
The most influential factor in getting a loan is the credit score. The lower the credit score, the lower the chances of getting a loan. And having a good credit score not only makes it easier to get a loan but also a lower interest rate. Improve your credit score by paying off debts, spending less, and paying bills.
Reduce debt burden
Having a large amount of debt will have a negative impact on your credit score. This will make it a barrier to getting a loan. So reduce the debt burden as much as possible before applying for a personal loan.
Take the help of co-signer
If your credit score is bad then find a co-signer who has a very good credit score. This will greatly increase your chances of getting a personal loan.