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Personal Loan Eligibility: How to Get Approved

Personal loan eligibility criteria can vary from lender to lender, but you’ll generally need a good credit score and low debt-to-income ratio to gain approval.

Written by Devon Delfino / September 22, 2022

Quick Bites

  • Lenders look for good credit scores and low debt-to-income ratios when reviewing personal loan applications.
  • You’ll need to provide information about your income and employment to apply for a personal loan.
  • It’s vital to shop around for personal loans since the terms and features vary from lender to lender.
  • If you aren’t able to qualify, there may be alternative options.

Personal loans can be a helpful financial tool to get out of debt faster or avoid taking on higher-interest debt if you run into a large expense you couldn’t otherwise afford. But they’re not available to everyone, as lenders have specific requirements that help them decide who’s qualified. Like many financial products, the key lies in cultivating a strong credit profile through responsible spending.

If you’re in need of a personal loan here’s what you need to know about getting approved and shopping around for the best loan, plus alternative options if you aren’t able to qualify.

Inside this article

  1. What you need to get approved
  2. What you need to apply
  3. How to shop for personal loans
  4. Alternatives to personal loans
  5. Frequently asked questions

What you need to get approved for a personal loan

Different lenders will have their own underwriting requirements for personal loan approval. But, in general, they’ll look at a few factors:

Credit score: Your credit score can give lenders insight into things like whether or not you pay your bills on time; if you’ve recently applied for other lines of credit; and how much debt you already have.[1] “Lenders want to see a low risk and a high credit score, 750 or higher, preferably—I'd say people should aim to have a score of at least 700 if they want to secure a competitive interest rate,” says personal finance expert Claire Tak, a writer and editor who’s covered money for nearly a decade for companies like Wells Fargo.

Income: Lenders want to make sure that you’re going to pay back the loan, and that means you’ll have to have adequate income. Of course, the minimum income required depends on the lender. The higher your income, the more likely you are to qualify and score a lower rate.[2]

Debt-to-income (DTI) ratio: Your DTI ratio can be found with a quick calculation: existing monthly debt payments divided by your monthly gross income. So if you pay $200 toward your credit cards each month, and you earn $3,500 a month, your DTI ratio would be about 5.7%. But keep in mind that rent is also factored into your DTI ratio, even though it isn’t usually categorized as debt. In general, you should shoot for a DTI ratio below 36%, and ideally, most of that would be your mortgage or rent payment.[3]

“In today's market, lenders are more cautious,” says Tak, so they’ll want to see positives across all of these factors to approve your application.

Reset

If you're not altogether creditworthy, so to speak, in these traditional categories, you might consider a secured personal loan as opposed to typical unsecured personal loans. A secured loan is less risky for lenders—and more attainable for you—because the debt is secured by an asset. You might post your car or cash as collateral, for example, to qualify for a secured personal loan. The risk to you, though, is that struggling in repayment on a secured loan could be losing that asset.

What you need to apply for a personal loan

When you apply for a personal loan, you’ll need to provide information to signal that you qualify. That generally includes the following:

  • Personal details: your contact information, Social Security Number or Individual Tax Identification Number (ITIN), date of birth and citizenship status

  • Employment and income details: your employment status, employer, gross monthly income and monthly mortgage or rent payment amount

And, of course you’ll need to specify the details of your desired personal loan, including the desired term, loan amount and sometimes, why you want to take the loan out. (You can’t use a personal loan for some things, like paying for college or buying a house.)

Depending on the lender and your answers to those questions, you may have to provide additional documentation for verification. That can include things like[4]:

  • Pay stubs, W2s or tax returns (income)

  • Utility bills (address)

  • Copy of driver’s license (identity)

How to shop for personal loans if you’re eligible

If you’re eligible for a personal loan, it’s important to understand that not every lender is going to offer the same perks or features as others. So it’s vital to shop around if you’re going to find a loan that meets your needs.

For example, you may want to consider the term lengths offered; what (if any) extras are charged (be wary of origination fees); and if you get to pick your payment due date. But beyond the loan details, you’ll also want to survey the company itself and how it supports borrowers.

“Look for lenders who have an established history of great service—look at reviews on TrustPilot and other trusted sites that give an unbiased review,” says Tak. She adds that great service can be different for everyone, but some of the things you may want to consider include:

  • If they offer live customer service that you can call at any time

  • How quickly they can approve you, and how quickly they disburse funds (some lenders can fund loans within 24 hours)

  • If the lender uses multiple factors to approve people, like your education and job (rather than just credit score)

Tip

Once you’ve narrowed things down to a few lenders, check if you can prequalify for the loan. That way, you’ll be able to see what actual terms you might get with each lender without hurting your credit score.

Sound Dollar reviewed 15 personal loan companies in mid-2022 and determined that the following lenders performed best in customer service and cost, among other categories.

Company
SoFi personal loans logoVisit
Best for
Best for
Overall
Key benefit
Key benefit
Unemployment protection if you lose your job while in repayment on this no-fee loan
Visit
Best for
Best for
Editor's pick
Key benefit
Key benefit
Skip one payment per year if you run into a financial hardship
Best for
Best for
Fair credit
Key benefit
Key benefit
You can qualify with a 600 credit score and three or more years of credit history
Best for
Best for
Good credit
Key benefit
Key benefit
The lowest APRs advertised among national lenders, and a “Rate Beat” program to boot
Best for
Best for
Debt consolidation
Key benefit
Key benefit
Have Marcus disburse loan funds directly to your creditor/s

Alternative options if you can’t qualify for a personal loan

If you’re currently ineligible for a personal loan, you may still have options. For example, you might consider the following[5-6]:

  • Personal loan cosigner or co-borrower: The key here is to ensure that your co-applicant has a solid credit score (670 or higher), a good income and DTI ratio, since that’s what lenders would be considering in approving your application. Co-applicants are legally responsible for repayment, however, and their credit report would reflect any problems paying back the debt.[7]

  • Secured personal loan: As mentioned above, there are secured and unsecured loans, with secured being more accessible if you're not creditworthy in the traditional sense of the word. If you have assets to use as collateral, you might have an easier time getting approved for a secured loan. Just be mindful that if your repayment on that secured debt goes south, you could lose the asset.

  • Balance transfer card: If you’re trying to consolidate credit card debt and considerable savings, this is a solid option. Depending on the card, you may be able to get a 0% APR for a number of months. That can help you save on the long-term costs of that debt. But keep in mind that you’ll likely pay a balance-transfer fee. Also, the APR will jump once the promotion period ends, so you’ll ideally zero the balance before that date.

  • Home equity loan: If you own your home, a home equity loan may be able to provide the funds you need. These loans take money out of your equity (home value minus your current mortgage balance). But you should know that this requires you to use your home as collateral, meaning that you risk foreclosure if you default on the debt.

  • Borrowing from a family member: If possible, borrowing from someone you know can help get you through a tough financial spot even if you don’t have great credit. The key is to set expectations and requirements up front so that it doesn’t cause issues with your relationship.

No matter which path you choose, it’s always a good idea to focus on getting your finances to a place where you can qualify for a personal loan in the future, should you need it.

“My recommendation is to start building credit now,” says Tak. “Open a secured credit card and make monthly payments on time. Get on a loved one's credit card as an authorized user—you don't even have to use the card, as long as the main cardholder is responsible and pays their bills on time!”

You can also consider a credit builder loan to start improving your creditworthiness, making it easier to get personal loan approval in the future.

Frequently asked questions

What do I need to qualify for a personal loan?

In general, you’ll need a good credit score (preferably 700 or higher), enough income to afford the payments, and a DTI ratio below 36%.

What if you’re deemed ineligible for a personal loan?
Can I use collateral for a personal loan?
Article Sources
  1. “What's in my FICO® Scores?” MyFico.com, https://www.myfico.com/credit-education/whats-in-your-credit-score.
  2. Louis DeNicola, “How to Get a Personal Loan With Low Income,” Experian, May 22, 2022, https://www.experian.com/blogs/ask-experian/how-to-get-personal-loan-with-low-income/.
  3. “A Guide To Debt-To-Income Ratio: How To Calculate It And Why It Matters,” RocketLoans, Sept. 16, 2022, https://www.rocketloans.com/learn/financial-smarts/debt-to-income-ratio.
  4. "Personal Loans Application Checklist," Wells Fargo, https://www.wellsfargo.com/personal-loans/checklist/.
  5. Brianna McGurran, “What Is a Balance Transfer and How Does It Work?” Experian, Sept. 4, 2021, https://www.experian.com/blogs/ask-experian/what-is-a-balance-transfer-and-how-does-it-work/.
  6. “How does a home equity loan work?” US Bank, https://www.usbank.com/home-loans/home-equity/how-home-equity-loans-work.html.
  7. Anna Baluch, “What Credit Score Does a Cosigner Need?,” Experian.com, Dec. 12, 2019, https://www.experian.com/blogs/ask-experian/what-credit-score-does-a-cosigner-need/.
  8. “How to get a loan: Learn what lenders look for,” Wells Fargo, https://www.wellsfargo.com/goals-credit/smarter-credit/credit-101/getting-a-loan/.

About the Author

Devon Delfino

Devon Delfino

Devon Delfino is a writer who’s covered personal finance—including everything from student loans to budgeting to saving for retirement and beyond—for the past six years. Her financial reporting has appeared in publications like the L.A. Times, U.S. News and World Report, Teen Vogue, Masha

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