Personal loan requirements vary by lender, but there are some considerations — such as credit score and income — that financial institutions always look for when reviewing applicants. Before you begin buying a loan, acquaint yourself with the final qualifications you’ll have to fulfill and also the documents you’ll have to supply. This knowledge can help streamline the application process and improve your chances of qualifying.
Here are some common personal loan requirements that financial institutions look for when evaluating loan applications.
Credit Score and History
An applicant’s credit score is one of the most important factors that a lender considers while evaluating a loan application. Credit scores range from 300 to 850 and are based on factors such as payment history, amount of debt outstanding, and length of credit history. Many lenders need candidates to own a minimum score of around 600 to qualify, however, some lenders can lend to candidates with no credit history.
Lenders impose personal loan requirements on borrowers to ensure that they have the means to repay a new loan. Minimum income requirements vary by lender. For example, SoFi imposes a minimum wage requirement of $45,000 per year; The minimum annual income requirement for Avant is only $20,000. However, don’t be surprised if your lender doesn’t reveal minimum income necessities. Many do not.
Evidence of income can include recent tax returns, monthly bank statements, pay stubs, and signed letters from employers; Self-employed applicants can provide tax returns or bank deposits.
The debt-to-income ratio (DTI) is expressed as a percentage and represents the portion of a borrower’s gross monthly income that goes toward his monthly debt service. Lenders use DTI to estimate a potential borrower’s ability to make payments on new and current loans. For this reason, a DTI of less than 36% is ideal, although some lenders will approve a highly qualified applicant with a ratio of up to 50%.
If you’re devoting to a secured personal loan, your lender will need you to pledge valuable assets—or collateral. In the case of loans for homes or vehicles, the collateral is usually related to the underlying purpose of the loan. However, secured personal loans can also be collateralized by other valuable assets including cash accounts, investment accounts, real estate, and collectibles such as coins or precious metals.
If you fall behind on your payments or default on your loan, the lender can withdraw the collateral to recover the remaining loan balance.
Although not part of the qualifying process, many lenders require borrowers to pay a personal loan origination fee to cover the costs of processing applications, running credit checks, and closing. These charges usually range between 1% to 8% of the total loan amount, depending on factors such as the credit score of the applicant and the loan amount. Some lenders collect origination fees as money upon closing, whereas others finance them as a part of the loan amount or subtract it from the overall loan quantity disbursed at closing.
Hence, what we have observed is – taking a personal loan is a wise decision to meet the additional funding requirements. The information or opinion given herein should not be construed as personal loan offers to purchase any particular product or service by any consumer and/or potential customer, or as personal loan offers to purchase any particular product or service. But before taking any decision on a personal loan, it is wise to check the service charges, foreclosure charges, and hidden charges associated with it. This way, we can compare the benefits and drawbacks of different lenders and go for the most suitable and affordable plan.