What Are the Requirements for a Personal Loan?

Personal loan requirements are similar across lenders, though some may have higher approval standards. For example, most lenders review your credit score on a personal loan application, but some require a high credit score, while others lend to fair- and bad-credit borrowers.

Here are common personal loan requirements and tips on how to improve your chances of getting approved.

Your credit score is a key factor lenders consider when evaluating you for a personal loan. A credit score helps lenders understand your reliability as a borrower.

Many lenders have hard minimum credit score requirements. Some offer loans to borrowers with thin or bad credit (scores from 300 to 629), but people with good or excellent credit scores (690 or higher) typically get the best annual percentage rates and terms.

Credit history is also a factor on most personal loan applications. Strong applicants have long histories showing on-time payments toward credit cards and other debt.

Lenders want to see that you have steady income or cash flow that can support monthly loan payments. Some lenders have specific minimum monthly or annual income requirements.

Your paycheck isn’t the only acceptable income source; many lenders accept income from others in your household, alimony and Social Security payments listed on an application.

Your debt-to-income ratio (DTI) is the percentage of your monthly income that goes toward debt payments. Lenders use DTI to evaluate your ability to afford new loan payments. While each lender sets its own requirement, they typically look for a DTI below 40%.

When you apply for a personal loan, you may be asked to submit documents to verify information like your income and identity. To speed up the process, gather necessary documents before you apply.

Required documents can include:

• Proof of identity, like a government-issued ID.

• Proof of address, like a utility bill or mortgage statement.

• Proof of income and employment status, like a pay stub, tax return or W-2.

• Proof of additional income such as retirement, alimony or child support.

• Social Security or Individual Taxpayer Identification number.

Lenders also usually ask for a verifiable phone number or email address.

Here are a few questions to ask yourself when deciding whether to get a personal loan, even if you meet the requirements:

Can I afford the monthly payments? Ideally, the personal loan payments fit comfortably in your budget. Use a personal loan calculator to estimate your monthly payment, and check the results against your budget.

Do I understand the fees? Some lenders charge origination fees, which can range from 1% to 10% of the loan amount. Late and nonsufficient funds fees are also common. Before applying, understand how the potential fees may affect the loan and your budget.

There are a few things that can strengthen your chances of getting approved for a personal loan, even if you don’t have a perfect credit score.

• Add a co-signer. Adding a co-signer with strong credit and income can help you qualify for a loan or get a lower interest rate. Keep in mind that a co-signer is responsible for loan payments if you stop making them. 

• Add collateral. A secured personal loan is backed by an asset like a car or investment account. These loans can have lower rates or higher amounts than unsecured loans, but the lender can take the asset if you fail to make payments.

• Take time to build credit. If you have a thin credit history, consider whether holding off on the application to work on your credit is an option. Secured credit cards and becoming an authorized user on someone else’s credit card are two ways to build credit.

• Lower your debt-to-income ratio. You can lower your DTI by paying down existing debt. Reducing your credit utilization also helps to build your score.

1. Review your credit report. First, review your credit report to get an understanding of how your credit may look to a lender. This gives you a chance to resolve any errors that might be affecting your score. 

2. Compare lenders. Some lenders provide debt consolidation loans with features that simplify the process, while others may specialize in lending to bad-credit borrowers. Your bank or credit union may offer special rates to customers. Compare different lenders and the features they offer.

3. Pre-qualify with multiple lenders. When you pre-qualify, lenders will show estimated APRs, terms and monthly payments so you can choose one that fits your budget. Pre-qualification involves a soft credit check, which means you can compare multiple loans without affecting your credit score.

4. Apply for a loan. The formal application process requires submitting an application and providing documents to verify your identity and income. Lenders will also run a hard credit check, which may drop your credit score a few points. Most lenders allow you to apply online, but some banks and credit unions require in-person applications.

5. Get funded. If approved for a personal loan, you’ll typically receive the funds within a week. The first payment date is generally 30 days after the loan has been issued.

If you’re denied for a personal loan, the first step is to understand why. Lenders are required under the Equal Credit Opportunity Act to provide the reason for denying a loan application. This information can help you identify the areas where you need to improve your financial or credit profile.

Next, take steps to strengthen your credit score by paying down debt, resolving errors on your credit report or building more credit history. While this process can take a few months or a year, it can provide the time needed before applying again. It can be difficult to qualify for a loan if you reapply too soon and haven’t built up your credit after being denied.

Also consider alternatives to a personal loan. Do what you can to build your savings or find a way to earn extra income. If you need to make a purchase, some merchants may offer buy now, pay later plans that let you break up a purchase across four to six payments, often without interest.