Personal loan debt in the United States is currently the highest it’s ever been. According to fool.com, U.S. consumers have a total of $177.9 billion in unsecured personal loan balances, with the average balance per loan coming in at just under $10,000. That means personal loans are quite popular and common in the U.S., and we’ll tell you how to qualify and apply for a personal loan so you get the money you need to cover unforeseen expenses or consolidate debt.
Qualifying for a Personal Loan
To qualify for a personal loan, most lenders have certain requirements the borrower needs to meet before being approved. In most cases, those criteria are:
- Credit score
- Credit report
- Payment history
- Debt-to-income ratio
We’ll go into those in more detail. But there are other eligibility requirements lenders may need you to meet to qualify for a personal loan, such as:
- You must be at least 18 years of age
- Many lenders require borrowers to be either American citizens or permanent residents; this may require you to have a Social Security number or provide a visa
- Have a bank account
- Reasonable financial obligations, meaning that if you already owe what the lender considers to be too much to other debts, they may not approve you
- Stable employment, so the lender knows you’re receiving a paycheck to help pay off your loan
Let’s take a closer look at the big three requirements.
This is generally the most important piece for a lender to consider when deciding whether to approve your personal loan application. Why? Because lenders want to protect themselves from those who may not pay back their loans. A credit score helps them see how creditworthy you are, because a low credit score is generally the result of low income or late and/or missed payments. A low credit score will tell a lender that you may be a risk to borrow money; and while this doesn’t necessarily disqualify you from receiving a personal loan, it could mean that your interest rates will be high so lenders can minimize their risk. If you have an excellent credit score, however, you’ll likely receive the best interest rates the lender has to offer. In general, most lenders require at least a 580 credit score for a borrower to be approved for a personal loan. It’s possible to receive one with a lower score, but you may have to explore different options, such as a secured personal loan.
The bank/lender is considering whether to loan you a significant amount of money. They’re going to want assurances that you have a job that provides steady income to contribute to your loan payments.
Credit (or Payment) History
Your credit, or payment, history is one of the biggest factors that determines your credit score. If you have a history of making payments on time, your credit score will likely be high. On the other hand, if your payment history includes missed or late payments (even one!), those late payments can remain on your credit report for up to seven years, which will impact your credit score and possibly your ability to qualify for a personal loan.
Applying for a Personal Loan
With those things in mind, when the time comes to apply for your personal loan, you’ll want to give your credit history and credit score a quick check to make sure everything is in order. When you’re ready to apply, take these steps:
Discuss your options with multiple lenders.
It’s easy to line up a variety of lenders. All it takes is some research on a variety of lenders to determine and compare their rates and terms. From there, you can figure out which lender offers the best personal loan option to fit your specific needs.
There are also lead companies like Lendingtree.com, NerdWallet, Bankrate, and others that send out your information to multiple lenders at once and then compile terms and rates for you. In most cases, you just need to enter some basic information, and the lenders will send you a loan offer that you can compare to others. But beware…while companies like these may save you some time and effort, they’re also going to flood your inbox and voicemail with a lot of emails and phone calls.
Finally, you can also go to your local banks and discuss personal loan options in person or apply directly on their websites.
Formally apply with financial documents.
Once you’ve decided on a lender or lenders that fits your needs (the right interest rates, loan terms, etc.), it’s time to prepare for the application by compiling all the financial paperwork you’ll need. This usually includes:
- Loan application. This is the official form your lender provides you, and you’ll need to give them your personal information as well as a reason for the loan, your income, and your credit score.
- Personal identification. You can use government-issued identification such as your driver’s license, birth certificate, or passport, as well as your Social Security number, if you have one.
- Proof of income. Because lenders want to know you’ll pay them back their money, you need to show them proof of how much money you make via documents like paycheck stubs, tax returns, or W-2 forms.
- Proof of address. Lenders will need to contact you by mail and send payment bills, so you must provide them with documents that prove you live where you say you do–such as a mortgage bill, lease/rental agreement, or a utility bill with your name on it.
Receive your personal loan.
Once you’ve been approved for your personal loan, you should receive it from the lender within a few business days–sometimes even faster. Sun Loan, for example, often provides borrowers with their personal installment loans on the same day! For the most part, if you use an online lender, you’ll likely receive it more quickly than you would at an in-person bank branch.
Find the Right Personal Loan for You
Whether you want to apply online or stop into one of our many convenient branches, Sun Loan offers personal installment loans to cover your financial needs, with same-day processing on many loans as well as affordable monthly payments that can help build your credit. Learn more and get started!