Getting approved for a personal loan can sometimes be a daunting experience for those who do not meet the requirements. The majority of people who applies for personal loans will not get approved because they don't meet the requirements.
The basic requirements to get a personal loans usually includes providing documentation like paystubs, W-2s, tax returns, and employment verification, however you can get approved for a personal loan from certain lenders who have less restrictions, but not drastically.
Overall requirements will vary from lender to lender, however they all have certain criterias that the borrower has to meet in order to qualify, and these are the top 5 steps how to qualify for a pertswonal loan and strenghten your chances of getting approved.
CREDIT SCORE
An applicants credit score is probably the number one item that a borrower will look at to determine whether they will give a personal loan or not, because as we all know, our credit file gives a lender a idea of our ability and willingness to repay, based on our past payment history from others who have extended credit to us in whatever form.
Most lenders would love to have borrowers have a minimum credit score of 680 or above, however I have worked with lenders who will approve a personal loan with much lesser scores, sometimes as low as 600.
INCOME
Most if not all lenders will have an income requirement. Some lenders will have minimum income requirements as low as $20,000 and others much higher requirements. Some lenders will not disclose their minimum income requirements publically, however they have them
The way the determine income is through weekly, bi-weekly paystubs, bank statements and deposits, tax returns, employment verification by calling or getting a signed, notarized letter from an employer.
Debt To Income Ratio (DTI)
If you have ever purchased real estate then you are probably very familiar with DTI, because that is how your lender determines whether they will give you a loan, and what type of loan you qualify for based on your DTI.
DTI in its simplest term is how much of your monthly income goes towards your debt, like car payments, mortgage, rent, credit card, etc. If a person earns one thousand dollars monthly, and they pay $200 for rent, $300 car payment, that is a 50% DTI, because 50% of their monthly income goes towrds their debt.
Lenders like to see DTI below a 36% or ideally even lower, however there are some lenders that will approve a personal loan with a DTI as high as 50%.
COLLATERAL
When applying for a secured personal loan, the lender will usually require the borrower to pledge some sort of valuable assets—or collateral. In the case of loans for homes or vehicles, the collateral is typically 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 like coins or precious metals.
If you fall behind on your payments or default on your loan, the lender can repossess the collateral to recoup the remaining loan balance.
FEES
Fees are not aprt of the requirement from the borrower toqualify for a personal loan, however I don't want you to be surprised or caught off guard. Lenders chae=rge what they call origination fee, and that is for their services rendered, these fees usually range from 1%-10% based on the borrowers credit worthiness, the better the credit, the lower the fees.
Some lenders will collect their fees at closing, others will include it in the loan, and subtract their fees at clsoing.
BENEFITS OF PERSONAL LOANS
Many people use personal loans for debt consolidation. By taking out a personal loan, you can pay off multiple credit cards or other debt. This will enable you to make one monthly payment instead of multiple. Furthermore, you will also benefit from a lower interest rate. You will have lower interest costs on one payment instead of several. And personal loans are often available at lower interest rates than credit cards. So, while they can help you pay off debt, make sure to keep them in a separate account. Regardless of the reason for applying for a personal loan, making sure your credit score is in good standing will make the process of qualifying easier. It's best to have a solid credit history before applying, so it's crucial to look for any mistakes and make timely payments. Furthermore, if you're unable to make your payments on time, pay off existing debt and you'll increase your chances of qualifying for a personal loan