To qualify for a personal loan, you need to reassure the lender that you’re likely to repay your loan on time and in full. A lender will want to verify your identity, see a history of well-managed credit and an ability (and motivation) to repay the loan. To gauge this, most lenders set minimum requirements regarding credit score, income and debt-to-income ratio (DTI), among other factors.
Understanding a lender’s personal loan requirements can help you find which lenders are most likely to approve your application, limit hard credit inquiries and save you from the inconvenience of a personal loan denial.
Even if you’ve been approved in the past, you may find it harder to be approved for a loan now. Recent reports indicate that lenders are tightening lending after a reported uptick in delinquencies. Banks and credit unions, particularly, are pulling back from originating new loans and offering lower amounts than finance companies and fintechs.
Personal loan requirements
Ideal credit score and history
“A higher credit score gets you better deals and more of them,” says Bruce McClary, senior vice president of media relations and membership at the National Foundation for Credit Counseling.
Indeed, according to research from online lending marketplace Credible, applicants with FICO scores above 780 benefit from the lowest personal loan interest rates overall. Applicants with scores below 679 pay more than twice as much in monthly interest for a three-year personal loan, on average.
Ideally, your clean credit history shines with consistent, on-time repayment patterns and without negative marks such as collection items and bankruptcies. If you have a FICO score in the fair credit range (580 to 669), know that fintech companies (as opposed to traditional banks) have increased originations to subprime borrowers and may be a good place to start looking for fair credit personal loans.
Check minimum credit score requirements between lenders (and know your own). Personal loan marketplaces often make lender minimums easy to find and compare. Then, prequalify to see which lenders are more likely to approve your application.
Verifiable Income
In addition to employment income, lenders may be willing to consider income from bonuses, rental properties, Social Security, pensions and retirement plans, public assistance, and disability. You don’t have to include alimony and child support, but you might do so to boost your documented cash flow. And if a good chunk of your monthly amounts arrive via cash tips or self-employment income, lenders usually request documentation such as tax returns.
In addition to how much you make, lenders consider how reliable your income sources are. Plus, most set a minimum annual income you’ll need to qualify, such as $25,000. Each lender has its guidelines and thresholds, depending on your repayment capacity.
Subprime lenders tend to be more lenient regarding employment and income requirements, McClary says. For example, a subprime lender may be more willing to consider deposit records for tips received every Friday or other supporting information about your ongoing employment. Examples of subprime lenders include Upstart, Upgrade, and Universal Credit.
Low debt-to-income (DTI) ratio
Lenders review your DTI to determine if you make enough money to pay your monthly debts, inclusive of your potential loan.
To determine your DTI, add up all your monthly debt payments (for example, your car loan, student loan and credit card payments). Divide the total by your gross monthly income. Multiply the resulting number by 100 to get your debt-to-income ratio as a percentage.
Acceptable DTI ratios vary by lender and are rarely publicly available, but the lower your DTI, the better, as it indicates you can handle additional debt. In general, homeowners should aim for 36% or less, while renters should try to maintain 21% DTI or less, according to the Consumer Financial Protection Bureau.
If you call the lender, a customer service representative may offer guidance on acceptable personal loan requirements regarding the DTI range or where flexibility might come into play, McClary says. Subprime lenders have more generous DTI ratios than banks or credit unions.
“If someone has higher DTI but there are mitigating circumstances of an 850 credit score, lengthy credit history and consistency in managing and paying current debt on time, a loan might be approved,” McClary says.
Collateral for a secured loan
Secured personal loans slightly outnumber unsecured loans, according to a 2024 study from Experian. Strategic use of collateral can help you meet personal loan requirements.
“Collateral is an opportunity to improve the term of a loan, reduce the cost of borrowing and improve your approval chances,” McClary says.
Using collateral—typically a car title, he notes—can make a difference if you have a lower credit score or want a better interest rate. The lender understands that a collateral-secured loan gives you more incentive to repay. If you have a thin credit file, you may be able to get a personal loan using CD or checking account funds as collateral, while securing an industry-low rate.
However, remember that using an asset as collateral could result in the lender taking your asset if you don’t repay your loan.
How to apply for a personal loan
Compare lenders’ available interest rates, loan terms and documentation requirements, and ensure you meet each lender’s minimum requirements to get the best personal loan for your needs. You can even request a standard loan agreement before borrowing.
- Prequalify first: Learn how much you could qualify for and what rate you might get based on a short questionnaire. Prequalification takes just a few minutes, doesn’t ding your credit but isn’t a guarantee of loan approval or rate—that comes after you’ve submitted documents and gotten approved.
- Compare quotes: Once you’ve prequalified with a handful of lenders, identify those offering the repayment term you want, loan amount you need, and the lowest rate. Then whittle the list down based on available discounts, customer satisfaction, and other criteria, such as telephone access, that are important to you.
- Collect documents: Proof of identity and income, such as pay stubs, bank statements or tax returns, are typically required when applying for a loan. Many institutions provide online portals to ease the upload process.
- Submit a formal application: Start the application process with your preferred lender. At this point, the lender will hard-pull your credit which could ding your score temporarily. The lender’s underwriters may also request additional documents or proof of any fact you’ve offered in your application.
- Review and decide: If your application is accepted, you’ll receive a loan agreement to sign. “You may feel pressured to move quickly to put ink to paper,” McClary says. “But take every minute to read that agreement because it is a legal document. If there’s anything you don’t understand, your opportunity to ask questions comes before you sign.”
- Sign: Sign the promissory note and receive your funds.
What documents do you need for a personal loan?
Proof of identity and address
Gather items to prove your identity and address, which helps lenders limit identity theft, accurately match you to your credit history and meet government regulations.
“All lenders must verify the identity of loan applicants, but there is some degree of flexibility in the range of acceptable forms of identification,” Mcclary says. He says at least two forms of identification are usually required, such as a driver’s license, state-issued ID and Social Security card.
Ask the lender which documents are acceptable, as it may depend on whether you’re a U.S. citizen, permanent or non-resident alien or hold another status. Acceptable documents could include a valid, unexpired:
- Passport
- U.S. permanent resident card
- IRS ITIN authorization letter
- Green card
- Employment authorization document
- Visa
- Certified birth certificate
Some lenders may also require utility bills to verify your current address.
Employer and income verification
A lender may ask you to sign an authorization to release your employment history and income from your employer or IRS Income Verification Express Service (IVES) tax records.
Otherwise, depending on the income you want to include, collect:
- Recent pay stubs
- W-2s
- Tax returns
- Social Security award or pension award letters
- Bank statements that show proof of deposits
- Profit and loss statements if self-employed
- Court-ordered agreements
Loan use documentation
The lender’s application may ask how you plan to use the funds and request documentation to support that statement, particularly over a specific dollar threshold. If you plan to consolidate credit card debt, say so.
“That stated intent could help change the lender’s perspective,” McClary says—even with a high DTI or less-than-perfect credit score.
But it comes with strings attached. If using a personal loan to pay off credit card debt, the lender could require sending the funds directly to your current accounts for payoff, he says. You’ll likely supply creditor, balance and account documentation for the lender’s use.
Some lenders offer a rate discount if loan funds are sent directly to your creditors for a debt consolidation loan.
Tips on qualifying for a personal loan
- Check your credit score before loan shopping: “If you see where you stand, you can make better decisions about the next steps and level-set your expectations about the loan types you might qualify for,” McClary says.
- Clean up your credit history: Many borrowers promise that past-due accounts or missed payments are “being resolved” when speaking with lenders. “You need to have issues resolved before you get to the lender,” McClary says. If necessary, reach out to a nonprofit credit counseling service for help.
- Review lender terms and qualifications for approval: Some lenders clearly state requirements, while others can be a bit vague or require a phone call to determine an approval-worthy credit score or DTI range.
- Ask tough questions: When shopping around, ask the lender’s customer service department questions about terms and fees. Get clarity on how the loan works long before you sign the contract and receive funds. Ask about loan-associated fees and other costs, including missed-payment consequences and prepayment penalties.
- Consider applying with a cosigner: Applying for a loan with a cosigner can mitigate lender concerns and potentially get you a lower annual percentage rate. Just note that not all lenders offer cosigned loans.
- Don’t apply to more than one lender at a time: Multiple personal loan inquiries differ from mortgage or auto loans, which bundle together as one inquiry, McClary says. Multiple recent inquiries from similar lenders without new corresponding accounts can raise a “yellow flag that gets the underwriter’s attention,” McClary says. It could appear as if you’re taking on debt with other lenders which have yet to report the account.
FAQ
Do you need proof of income for a personal loan?
To qualify for the best interest rate and loan terms, you must typically show proof of income when applying for a personal loan. The lender uses your income to calculate your DTI. Additionally, some lenders must verify your ability to repay specific loan types.
How much of a personal loan can I borrow?
The amount you can borrow depends on your creditworthiness, current DTI, the lender’s limits and your state of residence. Some lenders don’t make personal loans over a certain amount or only offer loans in higher amounts if you’re getting a secured loan. Some states set specific minimum loan amounts. The average personal loan balance in 2023 was $19,402, according to a 2024 Experian study.
How long does it take to get a personal loan?
Depending on the lender and whether your application contains any errors, a decision could come on the same business day. You’ll then have the chance to accept or decline the loan offer. The loan’s funds typically arrive 1-2 business days after mutual agreement unless you applied on the weekend or asked for funds to be sent to you by check.
However, some lenders like SoFi, U.S. Bank, Lighstream, and Reach Financial can deliver funds the same day if you apply by the lender’s cutoff time.
Can I get a personal loan with bad credit?
You may be able to get a personal loan with bad credit, but you’ll likely face less-than-ideal terms, such as a high interest rate or collateral requirements. If a lender bases its loan offer on something in your credit history, the lender must tell you so. You can access your free credit report weekly at AnnualCreditReport.com and hopefully resolve errors to gain better personal loan terms.
What should you do if your loan is denied?
If your loan application is denied, you’ll likely have to restart the application process from scratch with the same or a new lender. Learn why the lender denied approval for your loan. If credit-related, use the lender’s notice to request a free copy of your credit report from the lender’s credit bureau.
Correct any errors you see, and remember that loan denials can also alert you to identity theft. If the information is accurate, you can seek less stringent lenders, offer collateral, borrow from your retirement account, or ask a family member to cosign on a loan. Or simply work on rebuilding your credit first.
Will applying for a loan affect my credit?
An inquiry is reported to the credit bureaus whenever you apply for credit, including personal loans. Typically, the associated credit inquiry takes about five points off your FICO score for up to a year but does appear on your credit history for up to two years. If you agree to cosign on a personal loan, the loan inquiry and loan information may also appear on your credit report.
However, if using a personal loan to consolidate credit card debt, you could see a quick and significant boost to your credit score once the cards are paid off. This is because credit utilization can contribute up to 30% to your credit score. Timely payments on the loan may also have a positive impact, while late and missed payments could hurt your score.
Meet the contributor
Lora Shinn
Lora Shinn has been covering personal finance topics for more than 15 years, writing about personal and student loans, insurance, banking, credit cards, and more. Lora shares consumer information, rates, and unusual facts at sites such as Bankrate, Investopedia, and Newsweek.
