Lenders approve personal loans based on internal guidelines and the applicant's creditworthiness. To improve your chances of being accepted, we recommend increasing your credit score to 670 or higher, showcasing a consistent monthly income, ensuring your debt-to-income ratio is below 36% and considering getting a co-applicant.
When you’re ready to complete a personal loan application, start by preparing the required documents, which typically include proof of identity, income and address.
Your credit score, income and debt-to-income (DTI) ratio must meet the lender’s minimum requirements to qualify for a personal loan.
To increase your chances of getting approved, work on improving your credit score, only apply with lenders who fit your borrower profile, accurately estimate your loan amount and consider obtaining a co-signer on your application.
If your application is denied, contact your lender to find out why it was rejected and utilize the opportunity to negotiate new terms.
Over recent years, more Americans have been reaching for personal loans to fund unexpected or large purchases, consolidate debts, refinance high-interest credit cards or finance a home improvement project. In 2022, 20.4 million Americans were reported to have a personal loan, an increase from 19.9 million in 2021. As of the first quarter of 2022, the average new personal loan debt was $6,656.
The popularity of personal loans has grown faster than other forms of lending products, such as mortgages, student loans and credit cards, because they’re typically easier to acquire and feature monthly payments with lower interest rates.
Lenders may require that borrowers meet a minimum credit score, minimum income, and DTI ratio, among other criteria, to qualify for a personal loan. Because these borrower requirements vary by lender, you can increase your chances of being approved by only applying with lenders who fit your borrower profile.
MoneyGeek’s guide outlines our top tips and recommendations for getting approved for a personal loan.
What Are the Requirements for a Personal Loan?
When you submit a personal loan application, the lender will review it to evaluate your creditworthiness and capacity to repay your loan. In doing this, the lender assesses how risky it is to take you on as a borrower. During the review process, your lender will review your financial information, especially your credit profile and income.
There’s no one-size-fits-all when it comes to personal loan approval. Borrowers have a wide range of financial profiles and personal situations, and these are all considered by lenders during their review process.
That said, lenders tend to assign greater weight to some factors when deciding whether to approve an application. These include your credit score, income and DTI ratio.
Your credit score serves as a good indicator of your ability to repay your loans on time. Because of this, lenders typically prefer borrowers with good to excellent credit scores — 690 and above.
There are two important advantages to having a high credit score; you’ll have a greater chance of being approved, and you’ll receive lower interest rates and better terms on your personal loan.
Borrowers with proof of steady and consistent income are viewed as having the means to repay the loan and are less likely to default. Most lenders have an income requirement for personal loans, but the minimum amount tends to vary by lender. For instance, Discover’s minimum annual household income requirement is set at $25,000, while SoFi’s is much higher at $45,000.
Another useful metric that lenders use when evaluating loan applications is the DTI ratio. This shows the lender how much of your income goes toward debts and how much is left over for other expenses.
A lower DTI signals to a lender that you have enough usable discretionary funds to take on another financial obligation. A DTI below 30% is ideal, but some lenders approve applicants with a DTI up to 50%.
Most lenders have a digital application process that includes an online application, with some even offering instant approval. Others allow prospective borrowers to apply over the phone or in person at a physical location.
In addition to your loan application, you’ll also be required to provide documentation to verify the information included in your application. These typically include proof of identity, income and address, so it’s best to have these on hand.
You’ll be asked to present proof of your identity to make sure that you’re at least 18 years of age and a U.S. citizen or permanent resident. This step also serves to protect against identity theft.
Lenders will generally require you to present at least two of the following:
- Driver’s license
- Social security card
- State-issued ID
- Birth certificate
- Certificate of citizenship
- Military ID
Most personal loans are unsecured — meaning you don’t need to provide collateral. This is why having a high credit score and providing proof of employment are so important to lenders, as it’s their way to ensure you’ll be able to repay your loan.
If you have traditional employment, you can use these as proof of income:
- Tax returns
- W-2 forms and 1099s
- Bank statements
- Employer’s contact details
Alternatively, you may use the following if you’re self-employed:
- Income tax returns
- Bank statements
- Profit-and-loss statement
- Court-ordered agreements (for example, child support or alimony)
Your lender will also want to know your living situation. This allows them to assess the stability of your lifestyle.
You may present any of the following as proof of address:
- Voter registration card
- Mortgage statement
- Property tax receipt
- Rental agreement or lease
- A recent utility bill
- Home, auto or renter’s insurance certificate
- Bank or credit card statement
If you recently changed your address and need to confirm your new residential address, you may do so through the U.S. Postal Service’s website.
The following factors should be considered before you sign up for a personal loan:
- Know how you’ll use the loan: It’s important to only take out a personal loan if it’s absolutely necessary. Evaluate how you intend to use the loan and decide if it’s a legitimate reason.
- Consider alternative funding options: If you expect a salary increase in the near future, you may reconsider taking out a personal loan. Furthermore, it may be wise to consider borrowing from your own savings account if that’s an option.
- Know how much funding you need: Accurately estimating your loan needs is important to avoid taking out too much or too little. This will help you avoid paying extra interest or taking out a second loan.
- Check if you can afford the monthly payments: Making a higher monthly payment may help reduce the amount you’ll pay in interest over the life of your loan, but it’s important to budget for other expenses.
Increasing Your Chances of Getting Approved
MoneyGeek listed its top tips to maximize your chances of getting approved for a personal loan. Whether you’re applying for your first personal loan or reapplying after an application rejection, these tips may improve the odds that you’ll be accepted.
Review Your Credit Score
Most lenders have a minimum credit score requirement. Your credit score gives lenders an idea of your ability to make timely loan payments based on your credit history.
Even if your credit score meets the lender’s minimum requirement, only those with the highest credit scores will receive the lender’s best rates and terms. Before you apply, consider improving your credit score by making any past due payments or paying down any revolving account balances.
To learn what your credit score is, you can request a report from one of the three major credit reporting agencies. You’re entitled to a free credit report from each of these agencies once per year, making it easy to regularly monitor your score.
Some applications are rejected due to incorrect or missing information, so it’s best to check for any errors, such as incorrect credit limits. You may be able to get approved by simply correcting these and providing updated documentation.
Find the Ideal Lender
Lenders differ widely on their application requirements and loan terms. This is why it’s important to shop around and compare personal loan lenders to find the one that’s best for your financial situation. For instance, if you have bad credit, you can easily narrow down your search by focusing on lenders that offer personal loans to borrowers with low credit scores.
The ideal lender should be able to help you meet your financial goals. For example, certain lenders excel at providing personal loans for specific uses, like debt consolidation.
Determine How Much You Need
Prior to applying for a loan, it’s important to accurately calculate your financial needs. This will help you narrow down your lender options and avoid paying extra money in interest.
- Know the exact purpose of your loan: If you know exactly how you intend to use the loan, it’ll be easier to calculate the amount you need. This may involve evaluating your existing debts, if the loan is for debt consolidation, or researching costs related to home improvement projects if that’s the funds’ intended use.
- Use a loan calculator: A personal loan calculator is a great tool to help you approximate your monthly payments. By providing the loan amount, interest rate and repayment terms, you’ll get an idea of how much you’ll pay per month.
- Check for origination fees: Lenders may charge an origination fee which is typically deducted from loan proceeds. Ask your lender how much its origination fees are and add that to your desired loan amount.
Consider a Co-Applicant
Having a co-signer can improve your chances of getting approved for a personal loan, especially if your financial profile is somewhat lacking. For instance, if you have a low credit score, having a co-signer with stellar credit and a solid income history can help you qualify for a loan and at better terms and lower interest rates.
If you default on your loan, it’s important to recognize that the responsibility of making payments then falls to your co-signer. It might be tough to find someone that’s willing to take on that responsibility, especially since a co-signer doesn’t have legal rights to the property or items that are purchased using the loan.
Here are some useful tips when picking a co-signer:
- Find someone with a solid financial profile: Lenders will want to see a credit score over 700, in addition to a high income and limited debt history.
- Ask someone you trust and who knows you: You and your co-signer will be taking on a financial commitment that could stretch for years. It’s best to ask someone that you’ve known for a while and trust.
If your application is denied, you should take the following steps:
- Ask your lender about the reason you were denied: Your application may have been denied for a variety of reasons, like low credit score, insufficient income or incomplete application. Knowing why your application was rejected will allow you to make changes to get approved in the future.
- Check if there are any modifications you can make to your application: Ask the lender if tweaking your application by lowering the loan amount or shortening the repayment term will lead to your application being approved. Sometimes, making simple modifications can help your case.
- Make sure to avoid predatory lending options: Exploitative providers typically don’t disclose fees or costs, are aggressive in their pursuit and don’t check your credit score. We also advise against getting payday loans. These charges have extremely high-interest rates of up to 400% and have very short repayment terms.
Frequently Asked Questions About Personal Loans
MoneyGeek answered the most common questions about personal loans to help you find out more about this type of loan and what to expect when applying.
- USA.gov. "Change Your Address and Other U.S. Post Office Services." Accessed November 7, 2022.
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