Personal Loan Requirements: How To Apply For Financing
Miranda Crace7-Minute Read
UPDATED: June 08, 2023
If you’ve decided for any reason that you need a personal loan, you may be wondering about the next step. Getting this type of financing can be fairly straightforward, but you’ll need to ensure that you meet the lender’s personal loan requirements to secure the interest rate you want.
Let’s walk through the common requirements for personal loan approval, the step-by-step process of getting a personal loan and where to find a lender.
What Are The Eligibility Requirements For A Personal Loan?
While personal loan eligibility requirements vary from one lender to the next, most lenders will check a few of the same items. When you submit an application for a personal loan, your lender will most likely verify your:
- Credit score: Like other types of loans, lenders will use your credit score to assess your financial situation and determine your interest rate. Most lenders will have a minimum credit score requirement in the mid-600s.
- Payment history: When you apply for a personal loan, the lender will make a hard inquiry to check your payment history and see if you’ve ever missed a payment or defaulted on a loan. If so, your application might be declined, or you might be approved with a high interest rate.
- Annual income: Besides checking your credit and payment history, your lender will want to know your annual income. This will help them find a monthly payment and loan term that fits your monthly budget. Some lenders may even set a minimum income amount for all personal loan borrowers.
- Debt-to-income ratio (DTI): A DTI is a comparison of your monthly gross income against your monthly debt payments. Like your annual income, this helps the lender ensure you can afford the payment on your loan. Most lenders require a DTI in the 36% – 50% range.
- Collateral: Personal loans are usually unsecured, meaning you don’t have to use collateral for lender approval. However, some personal loans are secured. So, if you use this type of personal loan, you’ll need to find a valuable belonging you can use to secure the loan.
How To Get A Personal Loan In 6 Steps
If you think a personal loan is for you, follow these steps to get your cash in hand.
1. Figure Out How Much You Need
It may seem obvious, but knowing the loan amount you need to borrow is essential for getting a personal loan. Most lenders and lending platforms can loan up to $45,000 per borrower – and even $100,000 in extremely rare cases. There’s more to think about than if you can pay back what you borrow, though.
Find out if your lender charges an origination fee for the loan and be sure to account for any additional fees that go along with it. Interest rates can also make a huge difference in your monthly payment, so make sure you have it within your budget to afford these additional expenses and still have enough in the loan to cover the items you plan to use it for.
2. Shop Around For The Best Rates
When figuring out how to get approved, you’ll want to compare multiple loan offers. That may mean first seeing how much you prequalify for (which is considered a soft credit pull and won’t affect your credit score). To get prequalified, the lender will require some basic information, including:
- Your name
- Current address
- Income information
- Social Security number
- Date of birth
Once you’re prequalified, you should have an idea of the rates, terms and loan amount you can qualify for with a lender. Please note that not all lenders offer this prequalification step.
3. Choose Your Lender
If you think you’ve found the right lender, be sure to read the fine print carefully to know the amount of money you’d be getting into before you sign on the dotted line. Especially keep an eye out for fees and penalties, automatic withdrawal options and the estimated annual percentage rate (APR).
Once you’re sure you’ve found the best deal, you can move forward with the application process.
4. Apply For The Loan
When you decide to submit a full application, you’ll typically be asked to provide:
- Bank account information
- Personal identification or a driver’s license
- Pay stubs
- Bank statements
- Tax forms
Some lenders might ask for some of these documents during the prequalification process as well. To save time and minimize hassle, it’s a good idea to start gathering all your financial documents when beginning your search.
5. Wait For Approval
Approval for a personal loan can generally take 1 – 3 business days, and if approved, you can expect to see your funds in your account within 1 – 5 business days after that.
Borrowing through Rocket LoansSM can qualify you for same-day financing, meaning you could receive your money the same day you’re approved.*
6. Start Making Your Monthly Payments
With most lenders, borrowers will start paying back their loans within 30 days of receiving their funds. As an installment loan, a personal loan is typically paid back through monthly payments over a set period of time, or term. The amount of your monthly payment, including interest, will depend on your lender, your loan terms and your interest rate.
Where Can You Get A Personal Loan?
In addition to traditional banks, the two main types of lenders likely to offer personal loans are credit unions and online lenders. Whether you’re applying for a loan online or in person, each lender has its pros and cons and looks for something different in the application process.
Traditional banks may require a different minimum credit score than other types of lenders, and they could consider factors besides your income and credit score. These requirements may include how long you’ve had your job and how long you’ve lived at one address. (If you’re wondering whether you can get a loan without a job, it depends on the particular lender’s requirements.)
Keep in mind, however, that if the minimum requirement for a credit score is lower, other factors might be weighted more heavily. These include your employment history, education and income.
As a nonprofit financial institution, a credit union will be more likely to work with you if you have a low credit score. You’ll need to join the credit union before applying, however.
A credit union is also your best bet if you’re looking for a smaller loan – around $2,500 or lower. In some cases, a credit union might be the only place that even offers such a small personal loan.
Online lenders offer a diverse range of personal loans, catering to the full gamut of credit scores – from high (720 and up) to poor (629 or lower). This means the requirements for a personal loan will vary from online lender to online lender.
Rocket Loans generally requires a credit score of 640 or higher. On the other hand, you can generally expect to go through a prequalification process that includes a soft credit check. You might also be able to benefit from additional offers, such as no fees or variable interest during repayment.
FAQs About Getting A Personal Loan
Learn more about personal loans and lender requirements from the answers to these frequently asked questions.
What can I use a personal loan for?
One of the major advantages of a personal loan is that borrowers can use one for almost any situation, such as:
- Financing a small business
- Making a major purchase
- Funding home improvement projects
- Paying for auto repairs and maintenance
- Paying for medical expenses
- Planning for a family
- Consolidating credit card debt
What are some common personal loan qualifications?
Wherever you look to get a personal loan, you’ll need to make sure you qualify. You’ll typically need to meet a lender’s minimum credit score. Your eligibility also includes factors such as your annual income, payment history and DTI.
Can I get a personal loan with bad credit?
If you have fair or average credit, it’ll be tougher but still possible for you to get approved. You just might get a higher interest rate, shorter repayment term or smaller loan amount. Some lenders also offer secured options or require a co-signer for borrowers with low credit. (Rocket Loans doesn’t accept co-signers or collateral at this time.)
If your credit score is considered “bad” (any score of 629 or below), your only option might be taking the steps to improve your credit score so you can qualify for a personal loan in the future.
How does the personal loan application process work?
The application process for a personal loan can differ depending on which lender you choose. But, in most cases, you’ll provide the lender with your personal information using a loan application. They’ll then run a hard credit check to make sure you can afford the monthly payments and eventually pay off the loan in full.
If you decide a personal loan is the right option for you, be sure to shop around for the best deal. You’ll want to know the specifics, such as the APR, interest rate, your monthly payment amount and the time it’ll take to pay the loan off. Don’t overlook the fine print, either. You’ll want to be aware of any prepayment penalties, late fees or other fees before you apply for a loan in the first place.
Ready to start your application? Apply for a personal loan with Rocket Loans today.
*Same-day funding is available for clients completing the loan process and signing the Promissory Note by 1:00 p.m. ET on a business day. Also note, the ACH credit will be submitted to your bank the same business day. This may result in same day funding, but results may vary, and your bank may have rules that limit our ability to credit your account. We are not responsible for delays that may occur due to an incorrect routing number, an incorrect account number or errors of your financial institution.
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