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Personal loan eligibility

Here are the 5 main factors lenders consider when reviewing your loan application, plus 8 other factors.

You may be wondering, “Am I eligible for a loan?” Whether it’s secured or unsecured, fixed rate or variable, for $3,000 or $50,000 — you’ll likely need to meet some general personal loan eligibility criteria to qualify. We discuss the general requirements set by most lenders. While every lender is different and there’s no guarantee you’ll be approved, making your application as flawless as possible is a good start to finding a loan that works for you — and one you may be approved for.

The 5 main factors lenders consider

Every applicant is different, but many lenders want to make sure these areas are strong when determining your personal loan eligibility.

1. Income

Nearly every lender will require that you earn a steady income. This is to ensure you have the ability to make the minimum monthly repayments set by your loan contract. While some will allow any income amount, larger loans may require that you make a certain minimum amount before you can apply.

2. Employment

Here are 5 job-related factors lenders consider when evaluating a loan application. While not all lenders look at every single one of these factors, many consider at least one of them, especially income.

How many hours you work

Some lenders require you to work a certain number of hours to qualify for a loan — typically around 30. Others might only offer funding to borrowers with full-time jobs. Generally, the more hours you work, the more likely you are to get approved for a personal loan.

Who you work for

Being your own boss has many benefits. But it can be difficult to qualify for a personal loan if you’re self-employed. Some lenders flat-out won’t work with self-employed borrowers.

Others have a difficult time evaluating your income, especially if you don’t have pay stubs. If you receive pay in an unconventional manner, it might take a little bit longer for lenders to process your application — especially if they rely on an algorithm. You also might have to submit additional documents, such as recent bank statements and tax returns.

Your employment history

How long you’ve been in the work force is another factor that can affect your application — as well as the types of jobs you’ve had in the past. Some might require you to be at your current job for at least a year or 2. Others might only work with applicants who have worked in the same industry for a certain amount of time.

Often, these lenders will ask you to provide information about your work history in the application. For example, you may be asked to provide information about the employers you’ve had for the past 5 years.

Your job title

In addition to making sure that you’re employed, some lenders might ask about your job title. They do this for a couple of reasons. Some lenders cross-reference your job title with your salary as a protection against fraud.

However, lenders also might use your job title to predict how likely you are to default on your loan repayments — and this can affect your interest rate. As an example, an engineer with the same application as a lawyer might qualify for a lower rate because engineers have a higher rate of on-time loan repayments.

Prospective jobs

Some lenders also count a job on the horizon in your favour when you apply for a loan. Typically, you need to sign the contract and have a start date before you can put it on your application. Others might require you to start within a certain time frame such as 90 days.

3. Credit history

A good or excellent credit score with a solid history — one that has no major dings for missed payments or loan default — is the easiest way for lenders to know that you’re a trustworthy applicant, especially if you’re applying at a bank. If your credit score is fair or poor, there are still loan options for you to consider, however there will be less options available than someone who has good or excellent credit.

4. Loan security

There is a major difference between secured and unsecured loans. When you apply for a secured loan, like an auto title loan or a mortgage, you’re providing collateral in the event that you default. When you apply for an unsecured loan, one that has no collateral attached, your credit score becomes the main deciding factor.

5. Assets, debts and expenses

You’ll be asked to list your assets, debts and expenses on your application. Lenders use your debt and income to calculate your debt-to-income ratio (DTI). A higher income may boost your application whereas debts, such as credit cards, lines of credit or other loans, can hinder your application. Expenses are always estimated, but lenders generally have a good idea when you’re under or overestimating based on the data of other customers.

8 other factors that help your personal loan eligibility

While your lender might not advertise it, there’s a chance they’re considering at least a few of the following factors when you apply for a personal loan.

1. If you rent or own your home

Miniature home, calculator, keys and budget documents on a tableSure, you might spend the same on your mortgage as you would to rent, but some lenders consider whether you rent or own your home when you apply for a personal loan.

Why do they care? It might have something to do with your debt-to-income ratio (DTI). Your DTI is how much you owe each month on credit cards, car payments and other types of debt divided by how much you earn each month. Lenders like Refresh Financial use your DTI to tell how much extra cash you have to make loan payments.

It sounds straightforward enough, until you consider what actually counts as debt. Traditionally, lenders count mortgage payments, not rent, as debt when crunching a borrower’s DTI. This means that renters might be able to get a more favorable deal on a loan even if they pay the same amount toward housing each month. To get a more accurate picture of how much money you have to spend each month, it’s possible that some lenders will ask you if you rent or own on your application.

2. How often you change phone numbers

You probably won’t be asked how often you change your phone number on an application, but it still might be part of your lender’s underwriting secret sauce. If a lender notices that you’ve applied for loans or credit cards using different phone numbers over the past few years, it could be a sign that you’re not settled down enough to responsibly borrow money.

Changing your number once in a while probably won’t cause your application to be rejected. But multiple changes could raise a flag to lenders. And if that’s one of a few red flags, you might see less favorable rates and terms — or even be rejected.

3. Your level of education

When it comes to millennials and Gen Zers, credit score and income doesn’t tell a lender much about their ability to pay off loans. Especially if they’ve been slaving away at med school or for an MBA — they likely haven’t built credit or reached their earning potential. LendingMate, for instance doesn’t consider credit score at all when evaluating loan applications.

In an effort to open up personal loans to younger borrowers and get a more accurate idea of how much a borrower might make in the future, some lenders ask about your level of education. So don’t be surprised if you get questions about your highest degree, where and when you went to school or even your major.

4. How often you move

Lenders may notice how often you change your address when they review your tax returns or credit history. Like changing your phone number too many times, lenders see frequent changes of address as a sign that you aren’t financially stable enough to pay back a loan.

Staying in one place also shows a history of paying your mortgage or rent on time. If you move a lot for work, this might not count against you if that’s clear on your application. But otherwise, multiple address changes could hurt your chances of getting a good rate on a loan.

5. Your spending habits

Young couple talking about their savingsIt’s standard for lenders to ask for bank account information when you apply for a loan — it’s faster and easier to send money directly to your account than mailing or picking it up in person.

But some may also require bank statements to verify that you’re making what you say you’re making. Lenders may also request these documents so they can review your spending habits and determine whether you’re responsible with your money. If your bank account makes you look like an impulsive shopaholic, they might be less likely to trust you with a loan at a favorable rate.

6. Your nest egg

Your income is important, but your saving habits could also affect your loan application. Lenders may consider your savings, retirement accounts and investments when you take out a loan. Looking at your savings tells a lender 2 things: that you have a strong handle on your personal finances and you can probably afford to cover an emergency expense and keep up with your loan repayments.

7. Your work-related licences

Like education, some lenders ask borrowers if they have any professional licences or certificates. There are a couple reasons for this. A licence or certificate puts you in a higher pay grade and makes you eligible for more jobs. It’s also a sign of stability — that you’ve committed to a career.

While not having a licence or certificate might not hurt, especially if there aren’t any in your line of work, having one can boost your application.

8. If you’ve tied the knot

While not too common, some lenders may want to know if you’re married or single when you apply for a loan. Primarily, your marital status tells lenders if your salary is the only one to consider when you apply for a loan. However, this information is sometimes obtained by asking for your household income instead.

Quick tips to increase your personal loan eligibility

If you’re unsure about your eligibility, consider these tips to help give your personal loan application a boost:

  • Open a chequing account with the lender you’re applying with. If you’re applying with a bank or a credit union and don’t need a loan right away, establishing a banking history with the lender can help you get financing in the future.
  • Lower your debt-to-income ratio. Lenders generally want to see a DTI of less than 40%. You can lower yours by bringing in more money each month and paying down your outstanding balances.
  • Have a steady source of income. Lenders may not want to take the chance of giving you a loan if you’ve been employed for less than three months or if you don’t make the same amount each month. No matter how secure you think your job is, lenders may not see your short employment history that way.

7 reasons you got denied and 7 ways to increase your chances of approval

Bottom line

Remember that no personal loan is ever guaranteed, so use the guide above to ensure you’re giving yourself the best chance of approval by submitting a strong application that meets the criteria for a loan.

Before applying for a loan, be sure to compare your loan options to find the right lender that fits your needs.

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