People borrow personal loans for various reasons like home renovations, debt consolidation, and major life expenses. If you’re looking to borrow a personal loan, take time to understand the eligibility requirements before you apply. That way, you can put your best foot forward and hopefully snag affordable rates and terms.
While specific personal loan requirements will vary by lender, most consider your credit, income, and debt-to-income (DTI) ratio when determining whether you qualify.
6 requirements for getting a personal loan
Every lender sets its own personal loan requirements. It’s worth shopping around to find a lender that will work with you and offer a competitive interest rate. However, you’ll typically have to meet the following criteria, regardless of where you apply:
Credit score and history
First, lenders review your credit score and history to assess your risk as a borrower. Your credit scores usually range from 300 to 850. A credit score measures your ability to manage credit and pay back debt on time.
Credit score requirements will vary by lender, but some want a “good” score of 670 or higher. Having a “very good” score of over 740 or an “exceptional” score of 800 plus will likely qualify you for the best interest rates.1
Lenders will review your credit report in addition to checking your credit scores. Your credit report details your lines of credit, like credit cards and other loans. Having missed or late payments on your credit report could be a red flag to lenders, and they may not want to offer a loan if they’re not sure you’ll pay it back.
Earnings and income
Before issuing a personal loan, lenders want to see that you make enough money to afford your monthly payments. LendingPoint, for instance, requires a minimum income of $35,000.2 Many lenders, however, don’t disclose their minimum income requirements. When you apply for a loan, lenders typically ask to see pay stubs or other documents to verify proof of income or employment.
Eligibility for personal loans also depends on your debt-to-income ratio (DTI) or the amount you pay toward debt each month compared to your gross income. Lenders prefer a DTI of 35% or lower, but some may allow a DTI of up to 50%.3
If your DTI is higher than that, a lender may think your finances are over-extended, so they might hesitate to offer you another loan.
Providing identification documents
When you apply for a personal loan, you’ll be asked to upload verifying documents like your driver’s license or another form of identification and proof of address. You may also need to upload documents to verify your employment and income.
Security or collateral
Although most personal loans are unsecured, meaning they don’t require collateral, some are secured with collateral.
Collateral is a valuable asset that backs up a loan, like cash in a savings account or your car or home. Secured loans tend to have more lenient credit requirements since the lender can take your asset if you fall behind on payments.
Some lenders also charge an origination fee when issuing a personal loan, which covers the cost of processing your application and loan. This fee may cost around 1% to 6% of your total loan amount.4 You may have to pay this fee upfront, or it could be subtracted from your loan proceeds, resulting in a slightly smaller amount hitting your bank account.
Tips on how to get a personal loan
Now that you know how to get approved for a personal loan, here are some steps you can take to find the best offer for you.
- Check your credit score and lender requirements: Since credit is a major qualification factor for a personal loan, it’s important to know what yours looks like before applying. There are a few ways to check your credit score:You can use a free credit monitoring service to check your credit score, and you can see your FICO® score directly in the Chime app.5 You can also purchase your FICO scores directly from myFICO.com. You can review a free copy of your credit report from AnnualCreditReport.com, too, to get a bird’s-eye view of your accounts. Each credit bureau, Equifax, Experian, and TransUnion, offers access to a free online copy of your credit report each week.
- Explore various lenders for rates and terms: Check rates with at least three lenders to find the best offer. Many lenders let you prequalify for a personal loan online, meaning you can review rates and terms without a hard inquiry. Besides big national lenders, you might also want to check with your local community bank or credit union.
- Choose your ideal loan offer: Look for a loan with the lowest borrowing costs and affordable monthly payments. Along with finding a low interest rate, look for a loan with few (or no) fees and repayment terms that match your budget.
- Submit a thorough application: When you’re ready to move forward, you’ll submit an official application with your personal and financial details and any required documentation. After you officially apply, the lender will likely run a hard credit check, which could decrease your credit score by a few points. It should bounce back if you make on-time payments on your debts.
- Finalize your loan agreement: Assuming the lender approves your application, they may ask you to sign a final loan agreement and send the loan funds to your designated bank account. Review your contract to find out when payments are due. You may be able to set up automatic payments so you don’t miss any bills.
Denied for a personal loan? Here's what you should do
There could be several reasons why your application for a personal loan gets denied. Try to find out the reason for the denial so you can take steps to fix the problem. Here are some steps you can take in this situation.
Review your loan application for errors or inconsistencies
The simplest explanation for a loan denial could be a mistake in your application. Review all the information you provided to see if any errors or inconsistencies could have raised a red flag for lenders. Double-check to make sure you provided all the required documentation.
Ask the exact reason for the application rejection
Contact the lender to find out why your application was rejected. Most lenders offer customer service over the phone, web chat, or email, so you should be able to contact a representative and find out what happened.
Verify your credit report for any errors
The credit reporting bureaus don’t always get it right. You could have a reporting error on your report that’s unfairly making you look bad to lenders. According to a Federal Trade Commission study, one in five Americans has an error on at least one of their credit reports.6
If you spot any mistakes, you can submit an official dispute to try to have them removed. You can submit a letter or an online dispute form to each credit bureau (TransUnion, Equifax, and Experian) with the error on your report.
Look for ways to increase your income
You may have trouble qualifying for a personal loan if a lender deems your income insufficient. Even if you can qualify, a lender may offer a lower loan amount than you need.
Raise your credit score by reducing existing debts
If a low credit score is the issue, consider taking steps to improve it before you apply again. Your credit score is based on several factors, including your payment history and the amount of debt you owe.7 Paying bills on time and lowering your existing debt can help increase your score.
You might also try decreasing your credit utilization ratio or the amount of credit you’re using compared to what’s available to you. Paying down large credit card balances, for instance, can improve your credit score.
Apply for a reduced loan amount
It may be easier to qualify for a lower loan amount, especially if the lender rejected your application due to an insufficient income or a high debt-to-income ratio. Try re-applying for a lower loan amount to see if you qualify.
Think about utilizing a co-signer
Some personal loan providers let you apply with a cosigner if you can’t meet the credit, income, and DTI requirements on your own. Adding a creditworthy cosigner to your application could also help you access better interest rates.
Remember, though, that the loan will impact your cosigner’s credit. They’ll also be on the hook for repayment if you don’t pay your loan bills on time.
Review personal loan requirements before you apply
While each lender sets its own personal loan requirements, most rely heavily on your credit, income, and debt-to-income ratio when evaluating your application for a loan. If you’re worried about qualifying, you might take steps to improve your credit, boost your income, or reduce your DTI before you start the process.
Prequalifying with multiple lenders and comparing offers can help you apply for a personal loan that fits your budget.
Is a personal loan necessary?
Personal loans can be a useful financing option since you can use them for almost any purpose. They often make sense for consolidating debt, particularly if you can qualify for a better interest rate than you currently have.
However, borrowing a personal loan with high rates and fees could drain your finances, so it wouldn’t make sense if you could use a more affordable alternative to cover costs, such as your savings.
Is it hard to get a personal loan?
Getting an unsecured personal loan often requires a good credit score and a low debt-to-income ratio, so it may be difficult to qualify if you have poor or fair credit or a high DTI. The requirements for a secured personal loan may be less strict, but you must pledge collateral and risk losing your asset if you can’t repay your loan.
What is the typical processing time for a personal loan?
The processing time for a personal loan will vary by lender, but some lenders offer funding the same day you’re approved. Others offer next-day funding, while some take a week or two to process and disburse your loan.
What do you need to get a personal loan?
To get a personal loan, you must meet a lender’s credit, income, and debt-to-income ratio requirements. You may also have to be the age of majority in your state, meet citizenship or residency requirements, and live in a state where the lender operates.