Personal loan debt in the United States is currently the highest it’s ever been. According to fool.com, U.S. consumers have a total of $177.9 billion in unsecured personal loan balances, with the average balance per loan coming in at just under $10,000. If you are interested in obtaining a personal loan, it is important to understand how to qualify and complete the application process. By following these steps, you can increase your chances of getting approved for the loan amount you need to cover unforeseen expenses or consolidate debt.
Qualifying for a personal loan
To qualify for a personal loan, most lenders have certain personal loan requirements the borrower needs to meet before being approved. In most cases, those criteria are:
- Credit score
- Credit report
- Payment history
- Debt-to-income ratio
We’ll go into those in more detail. But there are other personal loan requirements lenders may need you to meet to qualify, such as:
- You must be at least 18 years of age
- Many lenders require borrowers to be either American citizens or permanent residents; this may require you to have a Social Security number or provide a visa
- Have a bank account
- Reasonable financial obligations, meaning that if you already owe what the lender considers to be too much to other debts, they may not approve you
- Stable employment, so the lender knows you’re receiving a paycheck to help pay off your loan amount in monthly payments.
Let’s take a closer look at the big three requirements for personal loan qualification: credit score, income, and credit history.
This is generally the most important piece for a lender to consider when deciding whether to approve your personal loan application. Why? Because lenders want to protect themselves from those who may not pay back their personal loans.
A credit score helps them see how creditworthy you are because a low credit score is generally the result of low income or late and/or missed monthly payments while a high credit score is generally the result of someone who is able to make repayments on time and has financial stability. A low credit score will tell a lender that you may be a risk to borrow money; and while this doesn’t necessarily disqualify you from receiving a personal loan, it could mean that your interest rates will be high so lenders can minimize their risk.
If you have an excellent credit score, however, you’ll likely receive the best interest rates the lender has to offer. In general, most lenders require at least a 580 credit score for a borrower to be approved for a personal loan. It’s possible to receive one with a lower score, but you may have to explore different options, such as a secured personal loan.
The bank/lender is considering whether to loan you a significant amount of money. They’re going to want assurances that you have a job that provides a steady income to contribute to your personal loan payments.
When applying for a personal loan, it is important to demonstrate to the bank or lender that you have a stable source of income. This reassures them that you will be able to make regular payments towards your loan. Providing proof of employment, such as pay stubs or employment verification, can help strengthen your application and increase your chances of approval.
Credit (or payment) history
Your credit, or payment, history is one of the biggest factors that determines your credit score. If you have a history of making payments on time, your credit score will likely be high. On the other hand, if your credit history includes missed or late payments (even one!), those late payments can remain on your credit report for up to seven years, which will impact your credit score and possibly your ability to qualify for a personal loan. You will want to assess your credit report for any negative factors that might impact your eligibility before applying for a personal loan.
Before applying for a personal loan, it is advisable to review your credit report to identify any negative factors that could potentially affect your eligibility. This allows you to address any errors or discrepancies and take steps to improve your creditworthiness before submitting your loan application.
Applying for a personal loan
With those things in mind, when the time comes to apply for your personal loan, you’ll want to give your credit history and credit score a quick check to make sure everything is in order. When you’re ready to apply, take these steps: check your lender options, apply for a personal loan, and successfully secure a loan.
1. Discuss your options with multiple lenders.
It’s easy to line up a variety of lenders. All it takes is some research on a variety of in-person or online lenders to determine and compare their rates and terms. From there, you can figure out which lender offers the best personal loan option to fit your specific needs.
There are also lead companies like Lendingtree.com, NerdWallet, Bankrate, and others that send out your information to multiple lenders at once and then compile terms and rates for you. In most cases, you just need to enter some basic information, and the lenders will send you a loan offer that you can compare to others. But beware…while companies like these may save you some time and effort, they’re also going to flood your inbox and voicemail with a lot of emails and phone calls.
You can also go to your local banks and discuss personal loan options and review loan terms in person or apply directly on their websites.
Finally, you can visit businesses that specialize in lending personal loans. Sun Loan may have a location near you, so you can stop by to discuss your needs and options with professionals.
2. Formally apply with financial documents.
Once you’ve decided on a lender or lenders that fit your needs (the right interest rates, loan terms, loan amount, etc.), it’s time to prepare for the application by compiling all the financial paperwork you’ll need. This usually includes:
- Loan application. This is the official form your lender provides you, and you’ll need to give them your personal information as well as a reason for the loan, your income, and your credit score.
- Personal identification. You can use government-issued identification such as your driver’s license, birth certificate, or passport, as well as your Social Security number, if you have one.
- Proof of income. Because lenders want to know you’ll pay them back their money, you need to show them proof of how much money you make via documents like paycheck stubs, tax returns, or W-2 forms.
- Proof of address. Lenders will need to contact you by mail and send payment bills, so you must provide them with documents that prove you live where you say you do–such as a mortgage bill, lease/rental agreement, or a utility bill with your name on it.
3. Receive your personal loan.
Once you’ve been approved for your personal loan, you should receive it from the lender within a few business days–sometimes even faster. Sun Loan, for example, often provides borrowers with their personal installment loans on the same day! For the most part, if you use an online lender, you’ll likely receive it more quickly than you would at an in-person bank branch.
Find the right personal loan for you
Whether you want to apply online or stop into one of our many convenient branches, Sun Loan offers personal installment loans to cover your financial needs, with same-day processing on many loans as well as affordable monthly payments that can help build your credit. Learn more and get started!