What Are the Eligibility Requirements for Personal Loans?

To get a loan of any kind, you have to be approved by the lender. And that means meeting the eligibility requirements. But what are the eligibility requirements for a personal loan? Turns out there’s not an easy, one-size-fits-all approach to that answer.

Find out more about common types of requirements for loans below, and then see how you may qualify a personal loan without meeting many of them.

5 Common Requirements for Personal Loan Approval

We’ve gathered some of the more common requirements for personal loans below and explained them further. But it’s important to note that some lenders may not consider some of these factors. Don’t think you can’t get a personal loan if you aren’t able to meet all five of these requirements.

1. A Credit Score That Meets Minimum Requirements

a person gives a thumbs up as they hold a smartphone with a good credit score on display

Many loan companies won’t approve people who don’t have a credit score above a certain amount. Typically, a “good” credit score — somewhere above 660, depending on the credit bureau — gives you the best chances of being approved for credit. However, many lenders that offer personal loans are willing to provide credit to people with credit scores below 660 or 670, which is considered to be the cutoff for “good” credit.

That doesn’t mean there isn’t a cut off, and if you have a very low credit score, you may find it hard to get approved for a personal loan. Do your research on loan requirements before applying. You don’t want to waste your time if you know a lender requires a certain score and you don’t have it.

2. Proof That You Can Make the Loan Payments

government payment forms

Many lenders want to see proof in your ability to make payments on the loan they’re giving you. Typically, that comes in the form of proof of income. You may need to provide copies of W-2s, paycheck stubs or tax documents to demonstrate how much you make each month. An applicant must be able to show verifiable income. Insufficient income can result in a denied loan application.

If you don’t have a traditional income, you may need to provide documents showing where the money is going to come from to pay the debt. That could include documents demonstrating your self-employment income, investment income or even a savings account with enough money to let you make payments.

3. A Debt-to-Income Ratio below a Certain Amount

a debt-to-income ratio, or DTI, is underlined in blue marker

In some cases, it’s not enough to document that you have a certain income. Lenders may want to know that you have enough room in your monthly budget to realistically pay the debt. In those cases, they’ll be looking at what’s called the debt-to-income, or DTI, ratio.

DTI is the ratio of your total debt payments each month to your income. The Consumer Financial Protection Bureau notes that 43% is a favored DTI figure, especially for home loans. In fact, many mortgage lenders won’t approve people for mortgages that bring them above that percentage.

To understand how DTI is calculated, consider the example below:

  • Someone makes $3,000 a month.
  • They have the following debts:
    • $500 car payment
    • $100 personal loan payment
    • $150 in minimum credit card payments
  • Those debts total $750 per month.
  • The DTI is $750/$3,000, or 25%.

Lenders of all types may have their own DTI requirements. If you’re denied a personal loan because your DTI is too high, you can take some steps to lower it by either paying down debt or raising your income.

4. A Lack of Certain Types of Items on Your Credit Report

a past-due bill

Some lenders won’t approve loans for people who have certain types of negative items reported on their credit files. That’s especially true if the items are relatively recent.

Again, this comes down to the policies of the lender, but some negative items that might make it more difficult to get approved for a personal loan include:

  • Extremely late payments or a habit of late payments. Almost no lender will balk at one 30-day late payment on a credit report. We’re all human, and even lenders know mistakes and emergencies happen. But if your credit report is dotted with late payments or you have payments 90 or 120 days late, lenders may take more notice.
  • Collections accounts, especially if they’re unpaid. If you’ve previously let a debt get to collections and you still haven’t resolved the matter, then that creates doubt for a lender that you’re someone who will honor your agreement with them.
  • Foreclosures or repossessions. The same is true for allowing a loan to get so past due that your property is repossessed. It sends a message to lenders that you may not be able or willing to pay your debts.
  • Depending on the type of bankruptcy you’re filing, you may not be able to get credit without the court’s approval immediately. Lenders may also be hesitant to approve a personal loan for someone who has recently declared insolvency, which amounts to officially stating that you can’t pay your debts.

None of these are necessarily a hard stop when it comes to getting a personal loan, though, especially if they occurred years ago rather than months ago.

5. Collateral Valuable Enough to Secure the Loan

a pawn shop loan, with a person exchanging a bracelet for cash money

If you’re applying for a secure personal loan, you need something you can use as collateral. This is a piece of property or item of value that can secure the loan. In this type of loan agreement, if you fail to make payments as agreed, the lender can take the item you put up for collateral and sell it to recoup some of its losses.

In some cases, the lender holds on to the collateral. One common example of this is a pawn shop loan. When you pawn something, the pawn shop gives you money for it. It then holds the item for an agreed-upon amount of time. If you pay back the loan, you get your item back. If you don’t, the pawn shop is free to sell it.

More commonly, you hold onto the security. The lender only repossesses it if you default on the loan. An example of this would be a personal loan secured by the title on a boat or recreational vehicle.

Getting a Personal Loan Even if You Can’t Meet Those Requirements

a couple signs a loan application

If those requirements sound daunting because you haven’t had time to build credit or you’ve had some financial mishaps, don’t worry. There are loan products you can qualify for without meeting all or some of these eligibility requirements.

Wise Loan loans, for example, don’t require a great credit score or strong credit history. In fact, with some basic information about your income, a checking account and an ID, you may be able to get approved for a personal loan with Wise Loan.

Find out more about how Wise Loan loans work and apply today.

The recommendations contained in this article are designed for informational purposes only.  Essential Lending DBA Wise Loan does not guarantee the accuracy of the information provided in this article; is not responsible for any errors, omissions, or misrepresentations; and is not responsible for the consequences of any decisions or actions taken as a result of the information provided above.

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