Although different lenders have their own requirements for personal loans, certain factors such as credit score and income are typically considered when assessing applicants. Before you start looking into how to get a personal loan, it’s important that you thoroughly understand the various requirements that will apply to you. Having a good understanding of these requirements can help you improve your chances of getting approved.
Before evaluating common requirements lenders have, you can easily get a rate quote online using a loan calculator. According to the experts at SoFi, “View your rate in 60 seconds — without affecting your credit score. Apply online from start to finish and get access to live, U.S.-based customer support, seven days a week.”
- Credit History and Score
One of the most important factors that a lender considers when assessing a loan application is an applicant’s credit score. This score is a combination of various factors that are used to evaluate an individual’s credit history. Usually, most lenders require a minimum credit score of 600 to be considered for a loan. However, some lenders will allow applicants with no credit history to get approved.
In addition to your credit score, lenders also consider other factors such as income to determine if a person can afford to repay a loan. Some lenders, such as SoFi, require that applicants have a minimum annual income of $30,000. On the other hand, at Avant, the annual income requirement is only $20,000.
Income can be submitted by various means, such as bank statements, tax returns and letters of credit from your employers. On the other hand, self-employed individuals may need to provide bank deposits or tax returns.
- Debt-to-Income Ratio
The debt-to-income ratio (DTI) is a percentage that lenders use to predict a person’s ability to make payments on their loans. It is usually used to evaluate a person’s ability to make timely payments. Having a DTI less than 36% is ideal, as some lenders will approve applicants with a ratio of up to 50%.
If you’re applying for a personal loan, the lender will require you to provide collateral, which is typically the type of assets that are related to the loan’s purpose. Usually, the collateral for a home loan is related to the underlying principle. However, other types of assets such as real estate, silver coins and investment accounts can also be used as collateral.
If you fail to make timely payments or are late on your loan, the lender may try to reclaim the balance by taking possession of the collateral.
- Loan Origination Fee
Some lenders require that borrowers pay an additional fee to cover the costs associated with running credit checks and processing the applications. These fees usually range from 1% to 8% of the total loan amount. Some lenders finance these fees as part of the loan amount, while others require them paid upfront.
The pre-qualifying process is a step in the loan approval process that allows lenders to evaluate a person’s creditworthiness. It typically gives them a preview of the loan they might give you.