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Am I eligible for a personal loan?
Here are the five main factors lenders consider — and what you'll need to qualify.
Applying for a personal loan is taking a big financial step. Whether it’s secured or unsecured, fixed rate or variable, for $3,000 or $30,000, you’ll need to meet some general eligibility criteria to qualify.
Our guide discusses the general requirements set by most lenders when they determine if you’re eligible for a loan. 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.
What are the five factors I should focus on?
Every loan application is different, but many lenders want to make sure these five areas are strong before they approve your loan request.
Nearly every lender will require that you earn a steady income. This is to ensure you have the ability to make the minimum monthly payments set by your loan contract. While some will take any income amount, larger loans may require that you make a minimum income before you can apply.
This differs among lenders. If they have an employment requirement, you may need to work full time in order to be considered. If you’re employed part time or are self-employed, you’ll still have loan options, though they may be fewer than those offered to people with traditional forms of employment.
If you’re unemployed, many lenders accept applicants who receive government benefits as a form of income, but you’ll still need to demonstrate you can afford to repay the loan while on those benefits.
Your job title might be more important than you think
In addition to making sure that you’re employed, some lenders might ask about your job title. They do this for a couple reasons. For example, some lenders cross-reference your job title with your salary to protect against fraud.
But lenders also might use your job title to predict how likely you are to default, and this can affect your interest rate. For 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.
3. Credit history
A good or excellent credit score with a solid history — one that has no major dings for missed payments or loan defaults — 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 isn’t the best, there are bad credit loan options for you.
4. Loan security
There is a major difference between secured and unsecured loans. When you apply for a secured loan, like an auto 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 (DTI) ratio.
More income may boost your application whereas debts, such as credit cards, store cards 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.
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Lenders sometimes look beyond the basics when evaluating your application. The following criteria could make a difference in whether you get approved — and your rate.
- If you rent or own. Rent doesn’t count toward your DTI but mortgages do. This means you could be treated more favorably if you rent than if you’re repaying a mortgage. But lenders’ top preference is to work with borrowers who own their home in full or have no payments.
- How often you change phone numbers. Lenders sometimes see borrowers who have changed their phone number more than once over the past few years as unstable.
- How often you move. Moving several times over the past five years is also a sign that your personal life is unstable — especially if you’re moving across states.
- Your level of education. In an effort to target younger borrowers, lenders like Upstart and Earnest factor in your level of education to help you qualify for a loan before you’ve built up a strong credit history.
- Your GPA. Lenders like Boro that specialize in personal loans for international students will even treat your GPA like a credit score — most applicants won’t have a credit history. These might also consider your major and SAT scores.
- Your employment history. Lenders want to see that you’re on a solid career path and plan on staying at your current job while you’re paying off the loan. Some even require you to be with your current employer for at least a year to qualify.
- Your spending habits. Lenders often look at how much you spend each month and where that money is going. If you appear to make a lot of impulsive purchases, it could hurt your chances of approval.
- Your nest egg. Having a retirement account and emergency fund are signs of financial stability. They also show that you’ll be able to cover your loan payments even if you’re hit with an unexpected expense — and can help your application.
- Your work-related licenses. Having a license or professional certificate can put you at a higher pay grade and also shows that you’ve personally invested in a career. Including these in your application can often work in your favor.
- If you’ve tied the knot. Some lenders consider your household income instead of your personal income when assessing your ability to repay. And many see marriage as a sign that you likely won’t lose access to that income while you’re repaying the loan.
How to increase your chances of getting a low rate
From applying with a creditworthy coapplicant to joining a credit union, here are a few ways to up your odds of getting approved for the lowest rate possible.
How to get a low rate on a personal loan
- Apply with a coapplicant. A family member with a good credit score and high income on your application can help you qualify for a low rate.
- Shop around. Prequalify with a few lenders to see which ones offer the lowest rate — often without impacting your credit score.
- Add collateral. Securing your loan with collateral — such as equity in your home or a CD — often means lower rates and better terms.
- Sign up for autopay. Many lenders offer an interest rate discount up to 0.5% when you use automatic payments from a bank account.
- Join a credit union. Credit unions often return their profits to members in the form of lower rates and eligibility criteria that’s easier to meet.
Remember that no personal loan application is guaranteed, so use the guide above to ensure you’re giving yourself the best chance of approval you can. You can also compare your options to find the right lender that fits your needs.
Frequently asked questions
Answers to common questions about personal loan eligibility
Which lender should I apply with for guaranteed approval?
There’s no such thing as guaranteed approval. If a lender advertises this, it’s likely a scam.
What is the required income for a personal loan?
The income required for approval will be different with each lender. Some lenders have set minimums, which you can find on their website or by calling customer service. Many lenders evaluate your income in relation to your debt and expenses rather having a cutoff number for eligibility.
What happens when lenders check my credit?
A lender will typically make a soft inquiry when checking your eligibility and then a hard inquiry if you decide to move forward with the loan. The hard inquiry will put a minimal dent in your score, but this is nothing that can’t be reversed with ongoing responsible borrowing.
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