Stuck in a pool of financial liabilities? Get immediate cash in your account through personal loans! Besides having reasonable interest rates and flexible loan terms, these loans are extremely easy to apply.
Nevertheless, you must meet a few personal loan requirements before submitting your request. This blog will help you understand these requirements and how to fulfill them for a seamless personal loan application process.
Requirements For A Personal Loan
Most personal loans are unsecured, meaning they are granted without a collateral guarantee. In such circumstances, the basis of personal loan disbursement is the mutual trust and understanding between the creditor and the debtor that the loan will be repaid with interest on time.
Along similar lines, the creditor proposes the following personal loan requirements to debtors to prove their financial stability and legal standing to acquire the requested credit.
Credit score
A credit score measures the promptness with which the debtor has repaid his past loans. In this context, FICO’s credit score is highly acceptable to lenders across the board. According to FICO, a credit score above 580 is considered decent to apply for a personal loan.
However, a good credit score, probably above 650, increases the chances of getting a high loan at lower interest rates to suit your budget. Nevertheless, we also help acquire bad credit personal loans for scores below 500.
Proof Of Income
A stable income indicates the debtor can repay the loan and interest without defaulting. To ensure this, the lender demands the latest proof of income when applying for a personal loan.
You can provide proof of your salaried income or earnings from other sources like social security, rent, short-term capital gains, interest, alimony, retirement benefits, and more. The only criterion is that the income must be credited monthly to your account. Some lenders may fix minimum income criteria for personal loans as well.
Debt-to-income ratio
The debt-to-income ratio indicates what share of your current earnings are diverted into repaying your existing debt. This clarifies whether you have the room to acquire an additional personal loan and bear the financial burden of its repayment.
A high debt-to-income ratio may hinder your personal loan application process. Consider lowering it as far as possible before applying for a new personal loan. Look for additional opportunities to increase your earnings and make this easier and quicker.
Collateral
While personal loans are usually unsecured, a few lenders may seek collateral if you apply for a higher loan amount. Under such circumstances, try handing over valuable collateral that will get you the requested credit worth and lower your interest rates for a budget-friendly personal loan.
You may offer a fixed asset as your collateral. These include your property, vehicle, cash, stocks, jewelry, antiques, insurance policy, etc. They will act as a loan guarantee and will be seized by the lender if you fail to repay despite repeated requests.
Documents Required for a Personal Loan
Your personal loan application is incomplete without specific documents that back every income and identity claim you make. Ensure they are updated, accurate, and submitted in prescribed formats for seamless approval.
While the documents required for a personal loan may vary for different lenders, the common ones needed across the board include:
- Credit Score Proof: Tax Identification or Social Security Number
- Income Proof: Pay stubs, bank statements, tax returns, W-2s or 1099s
- Identity Proof: State-issued government ID, passport, or driving license
- Address Proof: Latest utility bills, bank statement, property tax receipts, rent agreement, or voter registration card
How to Qualify for a Personal Loan?
The steps to qualify for a personal loan may vary for each lender. However, the broader process largely remains the same. Here’s what it includes!
Compare the lenders
When choosing a lender, you must strictly compare factors like interest rates, loan terms, and the maximum loan amounts granted. Also, ensure that the approval and disbursement process are quick and seamless.
Understand the eligibility criteria
Every lender prescribes different eligibility criteria for acquiring a personal loan. You can check your lender’s criteria on their official website or talk to a representative for guidance.
Decide the loan term and amount
Decide the loan amount based on the intended purpose, like debt consolidation, medical emergencies, education expenses, home renovation, and other unprecedented spending. Besides, you also need to decide the maturity period, which is the duration by which you will repay the loan principal amount.
Calculate the interest
Using the loan amount, loan term, and interest rate prescribed by the lender, calculate the interest amount you need to pay every month. Make sure it falls within the budget of your monthly income or salary. Defaulting on your interest payments may have severe legal and financial consequences.
Meet the loan requirements
Once the lender and loan terms have been determined, the personal loan requirements prescribed by the lender will be met. These include having a good credit score, lowering your debt-to-income ratio, and ensuring a stable source of monthly income.
File personal loan application
Finally, you can file your personal loan application with the personal, financial, and loan details sought by the lender. This will bring you to the final stage of the qualification process, where the lender will review your application, and the loan will be disbursed only if it gets approved.
Tips For Applying For A Personal Loan
To apply for a personal loan, you need to take the traditional route and follow each step diligently. A few expert tips may help you out wherever you face troubles.
Apply for a higher amount than what you need.
While granting the loan, lenders often charge origination fees, which is a percentage of the loan amount you requested. This effectively reduces the amount you receive. So, it’s better if you request a higher amount beforehand.
Choose a shorter loan term.
A longer loan term would mean you have to pay additional interest over and above your loan principal for a longer time. This could increase your financial burden and may keep you from diverting your income towards other needs. Consider choosing a short-term loan and repay your loan quickly with fewer additional interest payments.
Go for lenders offering lower interest rates.
Compare different lenders over the interest rate they’re offering. If needed, negotiate for a lower interest. Paying a high interest on a personal loan would increase challenges during times of financial distress.
Check approval time
Most debtors seek personal loans for emergencies. So, the approval time matters a lot! It’s wise to choose a lender that offers seamless and quick approval, probably within a day, and disburse the cash directly to your account.
What Happens if You’re Denied?
If you’re denied a personal loan, don’t give up! Seek a valid reason for refusal from the lender. Lenders are obliged to specify the reason under Regulation B of the Equal Credit Opportunity Act (ECOA). The probable reasons could be a lower credit score or a higher debt-to-income ratio.
In the case of the former, consult us, and we will help you get a personal loan with bad credit. However, in the case of the latter, we recommend you hold on for some time, settle your existing debts, improve your DTI ratio, and apply again.
If the reasons for refusal are minor, like improper documentation or errors in the application, get yourself a consultant and file the loan application under expert guidance to ensure flawlessness.
Frequently Asked Quesitons
How long does it take to get a personal loan?
The time taken to grant a personal loan may vary for each lender. Usually, you can expect to receive the approval within 24 hours of submitting the application.
Is it hard to qualify for a personal loan?
It’s easy to qualify for a personal loan. You just need to choose your lender wisely and go through its specific eligibility criteria. Make sure you meet the loan requirements and have a stable income to repay the principal and interest timely.
What disqualifies you from getting a personal loan?
A few reasons that may disqualify you from getting a personal loan include an extremely low credit score, a compromised credit report, lack of stable income, a higher debt-to-income ratio, or filing an incorrect loan application.
What can I use as collateral for a personal loan?
You can use any valuables as collateral, such as a piece of expensive jewelry, your car, property papers, antiques and collectibles, or stocks. The greater the value, the higher the loan amount you can secure for a reasonably lower interest rate.
What is the minimum credit score required for a personal loan?
While the minimum credit score requirement is different for each lender, they typically grant personal loans for scores above 580, according to FICO. A raised credit score may help you secure a higher loan amount or lower your interest rates for a budget-friendly loan term.
Can I get a personal loan with bad credit?
Yes, some lenders like Radcred provide personal loans for bad credit scores below 500 as well. We believe that your past credit history shouldn’t keep you from getting a loan during emergencies.
