Americans took out over $300 billion in loans in Q2 of 2019, a figure that’s been growing steadily in recent years. These unsecured loans are a great way to consolidate debt, put down money for major projects, or to make big purchases.
However, this avenue to cash isn’t open to everyone, and if you’re not sure how to get one, you’re not alone. Strict personal loan qualifications make it hard for some people to get approved, so it’s a good idea to be aware of the requirements—and how to qualify for a bank loan. Keep reading to learn more.
- Proof That You Meet Basic Eligibility Criteria
When you apply for a loan through a major lender, you’ll have to provide proof that you’re eligible to take out the loan. There may be slight variations in these requirements, but here are the most common:
- U.S. citizenship or permanent residency (with a Social Security number or long-term visa)
- Proof of residence showing that you have a permanent address and live in the state where the lender operates (with utility bills or bank statements)
- Government-issued proof of identity, showing you are at least 18 years old (with a drivers’ license or passport)
Only once you have proof that you meet these requirements will a lender move to the next steps to decide whether you qualify for a loan.
- Proof of Income
With the above requirements met, you’ll next need to show that your income is stable. In most cases, you’ll need to provide proof of regular income. This can include things like bank statements, pay stubs, tax returns, or a letter from your employer.
In some cases, a lender will ask for references such as the phone number of an employer to verify the information you provide. Because they’re invested in making sure you make on-time payments, you should be prepared for them to go through this information with a fine-tooth comb.
If you’re self-employed but can show you make a relatively stable income from month to month, you should still be in good standing. However, if you don’t have much money coming in, you may need to step back and figure out how to improve your finances, as this will ensure that lenders trust you enough to take a leap on a personal loan.
- Good Credit
When you’re applying for an unsecured personal loan—that is, one without collateral—your credit score will be the biggest consideration. Lenders won’t tell you the minimum score they’re looking for, but most major banks and financial institutions will only offer a personal loan to someone with good or excellent credit.
Before you get too far into the loan process, it’s a good idea to check your credit if you haven’t seen your score in a while. Free websites like Credit Karma will allow you to check, and you may also be able to check through your bank.
However, if you want to understand the full picture of your credit history, and to know exactly what your lender will be looking at, you’ll need to get your hands on a copy of your credit report.
For this, you’ll need to turn to annualcreditreport.com, a government website that makes it easy to request your report from the three major credit bureaus, Experian, Equifax, and Transunion. Once you’ve downloaded your credit report from each source, you’ll see information about your credit history, old or outstanding debts, and your repayment history. All of these factors influence your credit score.
If you have a good credit history, you’ll be in good standing to qualify for a personal loan. If not, you may be wondering how to get approved for a loan with poor credit.
How to Improve Your Chances of Qualifying for a Personal Loan
Wondering how to qualify for a personal loan with bad credit, or without a stable income? If you’re not sure about your chances, there are a few steps you can take for better results.
Improve Your Credit
This, of course, only works if you don’t need the personal loan right away. Improving your credit is a project that takes time, with longer durations for poorer scores. However, this tactic will put you in a good position if you’re considering making other big financial moves in addition to taking out the personal loan.
Shop Around for Lenders
All lenders will consider the factors above when making decisions about personal loans, but that doesn’t mean they weigh all factors equally. If one lender doesn’t approve you for a loan, try working with another.
You can start with any banks or financial institutions you have a history with, but branch out to local credit unions or online lenders as well.
Submit a Joint Application
If the steps above haven’t helped, you may be able to boost your chances by finding a cosigner with good credit. Your cosigner’s excellent credit history can make up for any deficits on your end, making lenders more likely to take a chance on the two of you as a pair. Usually, you’ll want to reach out to a close friend or relative who’s comfortable with the idea.
Consider Alternative Options
Depending on your needs, personal loans may not be the only lending options available to you. Do your research on other types of loans, and consider opting for peer-to-peer loans or hard money loans to get you the money you need, sometimes faster than you would with a personal loan.
Be Aware of These Personal Loan Qualifications
While there’s a lot of money up for grabs in the world of personal loans, it’s important to be aware of these strict personal loan qualifications as you move forward in the process.
Taking steps to make sure you have all of the required documents, as well as the right credit score, can mean the difference between walking away with money in your pocket and moving on to the next option.
Want more of the finance tips you need to know? Check out our other guides for more insights!