What Are Personal Loan Eligibility Requirements? (2024)

Personal loans can be used for many different purposes. Lenders, including banks, credit unions, and online lenders, offer personal loans. But before you start planning how you will use those funds, you will need to meet lender eligibility criteria.

Learn how factors like your credit score, debt, and collateral can affect whether you qualify for a personal loan.

Key Takeaways

  • Lenders will look at factors like your credit score, income, debt-to-income (DTI) ratio, and collateral to determine your eligibility for a personal loan.
  • Different lenders will have different requirements for approving personal loans.
  • Some lenders may be willing to work with applicants who have lower credit scores.
  • You will need to provide the necessary documentation for your application so that the lender can determine your eligibility.

Credit Score and Credit History

Lenders will take your credit score and credit history into consideration when determining whether to offer you a personal loan. Your FICO credit score is a number from 300 to 850. The higher your credit score, the more likely you will be approved for a personal loan because you will be viewed as a lower-risk borrower.

Credit bureaus calculate credit scores using the information on your credit report. Your credit report includes information on your credit activity, such as how many credit accounts you have, your debt level, your credit mix, and your payment history. It also includes whether you have recently applied for new credit.

Equifax, Experian, and TransUnion are the three main credit bureaus. You are entitled to one free credit report from them each year, which you can get through AnnualCreditReport.com.

You may have slightly different credit scores with each credit bureau because they calculate them in slightly different ways (using proprietary formulas), but the main factors that impact your score are roughly:

  • Payment history (35%)
  • Amounts owed (30%)
  • Length of credit history (15%)
  • New credit (10%)
  • Credit mix (10%)

Income

You need to be able to demonstrate a reliable source of income because lenders want to know that you will be able to repay what you borrow. Minimum income requirements will vary depending on the lender.

You will generally need more than enough income to cover your current debt obligations and your new debt obligations.

Debt-to-Income (DTI) Ratio

Your debt-to-income (DTI) ratio, one of the common five loan requirements of a bank, is calculated as a percentage. It measures your total monthly debt load in comparison to your total monthly income.

A low DTI makes you more attractive to lenders because it indicates you have more available income to repay a personal loan. For personal loans, it is recommended to have a debt-to-income ratio of lower than 36% to improve your chances of being approved for a loan at cost-effective rates—although, in rare cases, lenders may consider a DTI up to 40%.

Collateral

Most personal loans will be unsecured, which means you will not need to provide collateral to be approved. But bad credit may prevent you from qualifying for an unsecured personal loan.

However, you may be able to qualify for a secured personal loan. If you apply for a secured personal loan, you will need to provide collateral to back the loan. Collateral can be a physical asset, such as your vehicle, or a cash deposit.

Origination Fee

When you apply for a personal loan, you will need to pay an origination fee. Lenders charge this one-time fee for loan execution.

The origination fee is calculated as a percentage of the total loan amount. Origination fees vary by lender. They range from about 1% to 6%.

You may be able to pay the origination fee upfront, or it can be deducted from the total amount you are borrowing.

Lenders may also consider your age when you apply for a personal loan. Many lenders will not approve loans for borrowers under age 18.

Documents You Need to Include with Your Personal Loan Application

When you are ready to apply for a personal loan, you will need to gather the necessary documents.

The first step to getting a personal loan is filling out a loan application. The application process can be slightly different with each lender, but typically, you will be asked to share personal and financial information that will help the lender determine if you are a good candidate for a loan.

You may be able to fill out an online application for some lenders. If you want to get a personal loan from a bank, you may have to complete your application in person.

Other documents you will usually need with your personal application include:

  • Proof of identity: You will need to provide government-issued ID, such as a driver’s license, as proof of identity.
  • Proof of address: Lenders will likely want to see proof of address. While requirements may vary, you can typically use a rental agreement, mortgage statement, or utility bill.
  • Employment and other income: Lenders want loan applicants who can pay back what they borrow. You may be asked to provide employment and income verification in the form of W-2 forms or pay stubs.
  • Other documents: Once a lender has reviewed your loan application, it may request additional documents such as tax returns and bank statements.

How to Get Approved for a Personal Loan

To get approved for a loan, you can take several steps to improve your financial situation so that you meet a lender’s criteria. Here are some key ways to increase your chances of being approved:

  1. Demonstrate steady income: Lenders want to see that you have the ability to repay a loan. Having a steady job and the paperwork to demonstrate a reliable source of income will make you a more attractive candidate for a personal loan.
  2. Work on your credit score: Your credit score is a measure of your creditworthiness. The higher your score, the more likely you are to qualify for a loan with better terms. In most cases, a credit score of 640 or higher will give you access to the best loan terms.
  3. Avoid late payments: Late payments can impact your credit score. Lenders may consider a history of late payments to be an indication that you do not manage debt responsibly. This could result in your application being denied or your loan having a higher interest rate.
  4. Maintain a low DTI: Lenders also look at your DTI to determine your eligibility. A high DTI may indicate that you have overextended your finances and may struggle to pay back a personal loan. Lenders typically want to see a DTI below 36%.

What to Do If You’re Denied for a Personal Loan

If you are denied for a personal loan, you will receive an adverse action notice. This notice will explain why your application was denied.

Once you know why you were denied, you can take steps to prepare yourself to reapply successfully. They include:

  • Consider other lenders: While one lender may deny your application, you may be able to work with another. Try getting pre-qualified with a few other lenders to compare rates and terms. Pre-qualification will not impact your credit score.
  • Check your credit report: If you were denied because of a low credit score, check your credit report. Are there any errors impacting your score? If so, you can dispute those errors and have them removed.
  • Pay down your debt: Your overall debt load and debt-to-income (DTI) ratio could be a factor in a lender denying a personal loan. You may need to reduce your debt to meet their DTI criteria before applying for a personal loan again.
  • Get a co-signer: A co-signer is someone who agrees to pay the loan if you cannot. A co-signer with good credit could improve your chances for getting a personal loan.
  • Consider a secured loan: If you are denied for an unsecured personal loan, you may be able to offer an asset as collateral, such as your car, and qualify for a secured loan.

How Long Does It Take to Get a Personal Loan?

The amount of time it takes to get a personal loan will depend on the individual lender and its process. Typically, you can expect the process to take less than a week. Some lenders provide same-day funding after approving a personal loan.

What Disqualifies You from Getting a Personal Loan?

If you do not meet a lender’s specific eligibility requirements, you will not be able to get a personal loan with that lender. Lenders may deny a personal loan application if your credit score is too low, your debt load is too high, or your income is not high enough to repay the loan.

Do You Need Collateral to Get a Personal Loan?

Personal loans are usually unsecured, which means you do not have to provide collateral. If you are applying for a secured personal loan, you will need to supply an asset to be used as collateral.

What Is the Maximum You Can Borrow with a Personal Loan?

The amount you can borrow with a personal loan will vary depending on the lender. In most cases, the largest personal loan you will be able to take out will be $100,000.

What Is the Minimum You Can Borrow with a Personal Loan?

You may be able to borrow as little as a few hundred dollars with a personal loan. The minimum required amount will depend on the lender.

The Bottom Line

Determine if a personal loan is your best option before you apply, by ensuring you can meet the lender’s eligibility requirements. You can use a personal loan calculator to get an idea of what your monthly payments and the total cost of the loan will look like.

If a personal loan is the right fit for you, you can compare offers to find the best personal loan with a rate and terms that work for you.

What Are Personal Loan Eligibility Requirements? (2024)

FAQs

What Are Personal Loan Eligibility Requirements? ›

Lenders will look at factors like your credit score, income, debt-to-income (DTI) ratio, and collateral to determine your eligibility for a personal loan. Different lenders will have different requirements for approving personal loans. Some lenders may be willing to work with applicants who have lower credit scores.

What makes me eligible for a personal loan? ›

Most personal loan lenders review your credit score, credit history, income and DTI ratio to determine your eligibility. While the minimum requirements for each of these factors vary for each lender, our recommendations include: Minimum credit score of 670.

What are the basic criteria for a personal loan? ›

CIBIL Score – A CIBIL score above 720 is ideal for Personal Loans. Income – It plays a vital role in the approval of the loan amount. Repayment history- If you have a good track record of repayment with previous loans, approval of the loan is faster and easier.

How difficult is it to get approved for a personal loan? ›

Lenders will review your credit history and credit score to determine your creditworthiness and ability to repay the loan. Generally, borrowers with a “good” credit score — 670 or higher — will have the most options for a personal loan. But some lenders may accept credit scores lower than this.

What is the minimum income for a personal loan? ›

While nearly all personal loans incorporate income as a component of the application process, lenders may vary in their minimum income requirements; one lender may require a minimum annual income of at least $25,000 while another may state a minimum annual income of $35,000.

Why do people get denied for personal loans? ›

Your credit score is too low

Good or excellent credit (a score of 690 or higher) and a history of paying other loans or credit cards on time will help you qualify for a personal loan, while fair or bad credit and a history of missed payments could get your application declined.

How hard is it to get a $30,000 personal loan? ›

For a $30,000 loan, you'll typically need a credit score above 600 just to qualify or above 700 to get a competitive rate. A high enough income: Part of the lender's evaluation of your loan application includes determining whether you can afford the payments.

What is the easiest loan to get approved for? ›

What is the easiest loan to get approved for? The easiest types of loans to get approved for don't require a credit check and include payday loans, car title loans and pawnshop loans — but they're also highly predatory due to outrageously high interest rates and fees.

What are the requirements for a $10000 personal loan? ›

The main factor in determining if you qualify for a $10,000 personal loan is your credit history. You'll need a credit score of at least 670 before you apply. Lenders look at your debt-to-income ratio when deciding approval. A DTI ratio of 36% or lower is ideal.

Which bank is best for a personal loan? ›

Lowest interest rates charges by banks on their personal loans:
BankMinimum interest rate on personal loan (%)
HDFC Bank10.5
State Bank of India12.30
Bank of Baroda13.15
Punjab National Bank13.75
6 more rows
Jan 24, 2024

Who is the easiest to get a personal loan from? ›

Easiest-to-get personal loans compared 2024
TitleAPRMin. credit score
BadCreditLoans.com5.99% to 35.99%Undisclosed
Upstart5.2% to 35.99%300
Avant9.95% to 35.99%580
LendingClub8.98% to 35.99%600
6 more rows
May 7, 2024

Do personal loan companies check your bank account? ›

Your bank account information may be required either to verify revenues or to facilitate ACH payments. It is essential that when you are asked to provide personal information make sure you are dealing with a reputable company and using a secure website. (See tips below.) Loan approval regardless of credit.

How hard is it to get a $5,000 personal loan? ›

You will almost certainly have no problems qualifying for a $5,000 personal loan if you have a strong income and good credit. However, you may struggle to get approved if your income is inconsistent, you have a low credit score, or you have a considerable amount of debt already.

What income do you need for a $20,000 loan? ›

Some lenders state they require stable, consistent income, while others list a minimum income requirement. For example, Discover requires a household income of at least $25,000. Finally, personal loan lenders consider your DTI ratio or your ratio of debt to gross income.

How do I qualify for a 5000 loan? ›

Requirements for a $5,000 Personal Loan

Some lenders may have a strict minimum credit score requirement, while others may be willing to approve you with a lower credit score. You will also need to have a source of income and a history of paying bills and past debts on time.

What credit score do I need for a $50,000 loan? ›

You'll have the best chance of getting approved with an excellent credit score, such as one above 800. You may struggle to find a lender that will approve a $50,000 loan for folks with poor or bad credit. A "poor" credit score is considered 580 or under. Most lenders require at least a "fair" score of around 670.

Who is most likely to get approved for personal loan? ›

Borrowers with multiple credit cards, a mortgage, or an auto loan showing regular on-time payments may be more likely to qualify. Debt-to-income ratio: Lenders seek borrowers who make enough money to meet their current monthly financial obligations, plus loan payments.

Do I have to have a reason for a personal loan? ›

In short, yes. While most reasons won't stop you from obtaining a personal loan, you'll need to explain why you need the money you're borrowing. You can generally use the loan proceeds however you see fit, but some lenders have restrictions. Plus, the loan purpose could impact the loan terms you receive.

Top Articles
Latest Posts
Article information

Author: Van Hayes

Last Updated:

Views: 6222

Rating: 4.6 / 5 (66 voted)

Reviews: 89% of readers found this page helpful

Author information

Name: Van Hayes

Birthday: 1994-06-07

Address: 2004 Kling Rapid, New Destiny, MT 64658-2367

Phone: +512425013758

Job: National Farming Director

Hobby: Reading, Polo, Genealogy, amateur radio, Scouting, Stand-up comedy, Cryptography

Introduction: My name is Van Hayes, I am a thankful, friendly, smiling, calm, powerful, fine, enthusiastic person who loves writing and wants to share my knowledge and understanding with you.