Applying for a Personal Loan? You’ll Need to Meet These Requirements

Before you head to the bank, check out these common requirements.
6 minute read | 8/26/19Aug. 26, 2019
A man applying for a personal loan

Every now and then, a little extra cash can be a big help. Personal loans can be one way to get access to the capital you need to handle an emergency or meet some other financial goal or obligation.

However, before a lender gives you the money, you’ll need to meet certain criteria. Here’s a look at some of the personal loans requirements you’re likely to run into.

5 personal loan requirements you usually need to meet

With any loan, you’re using someone else’s money to accomplish something. Whether it’s consolidating debt, making a car repair, or going on vacation, a personal loan represents a lender’s faith in you, and you’ll be expected to repay the money over time.

As a result, lenders set personal loans requirements to determine how likely you are to make your payments. Here are some of the most common personal loan requirements you’ll see.

1. A decent credit score

A lender is likely to look at your credit score, especially if you want an unsecured personal loan. Your credit score is a measure of how you’ve managed debt in the past. A high credit score usually signals that you can be relied on to make your payments and keep your debt levels manageable.

For better loan rates, you’ll typically need a FICO credit score of at least 660, but you’ll likely need a score even higher for the lowest possible rate.

Depending on the lender, however, you might need to meet different credit score requirements. It’s possible to get a personal loan even with bad credit, but you’ll probably have to pay a much higher interest rate to make up for the risk you represent.

2. Reliable, stable income

If you’re going to make regular payments on your loan, you need to show that you have a source of income that makes it possible.

You might be required to show recent pay stubs proving that you have a current job. In some cases, you may have to show tax returns or other documentation that you have a source of stable income from a business.

A lender will let you know what documents are necessary to prove your income. Provide these in a timely fashion for best results.

3. Relatively low debt and other expenses

When you apply for a personal loan, the lender will often look at your other debts as well as your major recurring expenses, such as housing costs. If you have a lot of other debt payments to make and they take up a large portion of your monthly income, there’s a chance you might default on a new loan — and lenders might see it as a red flag.

Lenders may also consider your rent or mortgage payments to determine whether you have enough cash flow available to afford the personal loan you’re applying for. If it looks like you have an especially high debt-to-income ratio already, you might be turned down for a loan.

In general, many lenders like to see that no more than 43% of your monthly income will be taken up for debt payment, according to Experian.

4. At least 18 years old and U.S. residency

In order to take out a loan in your own name, you must be at least 18 years old. This is the legal age to make your own decisions and hold most financial accounts.

However, lenders also often require some proof that you are legally in the United States. If you’re a U.S. citizen, you might need to provide your Social Security number. For those who reside in the U.S. but are not citizens, you may be required to show your green card or some other proof that you’re eligible to live and work in the United States.

5. Have a bank account

Some lenders also require you to have a bank account. A lender might check to see what level of assets you have in checking and savings accounts. However, a lender may also want to make sure that you can set up autopay for your loan payments.

Double-check the requirements to see if you need to open a bank account before you apply for a personal loan.

What to do if you don’t meet the requirements

In some cases, you might have a hard time meeting the above personal loan requirements. When that happens, you may be denied for your loan. Before you apply, there are some steps you can take to increase the chances that you’ll be approved.

Add a cosigner to your personal loan

A cosigner is someone who meets the personal loan requirements and is willing to take responsibility for your loan. If you can’t get a loan by yourself, a cosigner might be what you need to move forward. You still make payments and are primarily responsible for the loan — but if you can’t make payments, your cosigner is legally responsible for them instead.

It can be difficult to find a cosigner, though, since few people may be willing to be responsible for your debt if you fail. Additionally, this can ruin relationships if a family member or friend is stuck with your loan if you can’t make your payments.

Wait until your credit improves

Rather than applying for a loan right away, consider waiting until your credit improves. There are steps you can take to improve your credit, and if you can wait a few months, this strategy can help you qualify for a loan — and get a better interest rate. Some things you can do to improve your credit include:

  • Pay down existing debt
  • Make all your payments on time
  • Keep long-standing accounts open

You can track your consumer credit score using tools like Credit Sesame and Credit Karma.

Use a 0% APR credit card

Depending on your situation, it might be easier to qualify for a 0% APR (annual percentage rate) credit card than to get a personal loan.

If you can get a credit card with a 0% promotional period, you can use that to cover your necessary costs. You could also use one of these credit cards to complete a balance transfer if you’re consolidating debt.

If you go this route, make a plan to pay off the debt before the 0% APR expires. That way, you won’t be stuck paying a high interest rate when the introductory period ends.

Get a secured personal loan

In some cases, if you don’t qualify for an unsecured loan, you might be able to get a personal loan if you’re willing to provide collateral. You could possibly offer the contents of a savings account, a valuable object, or a car to secure the loan.

With a secured loan, your credit is less important because if you don’t make your payments, the lender can claim the collateral to help offset the value of the loan. However, you are putting your assets on the line, so be sure you’re comfortable with the risk of losing your collateral if you opt for a secured loan.

Find an alternative lender

Finally, there are lenders that may be willing to work with you when you don’t meet some of the more common personal loans requirements.

For example, a payday lender might give you a loan based entirely on your paycheck — without doing a credit check at all. You might also find short-term lenders willing to lend you relatively small amounts of money with poor credit as long as you make small, weekly payments.

It’s important to realize, though, that these types of lenders can be dangerous. They often charge incredibly high fees and interest rates, and they make it easy to extend your loan, potentially trapping you in a cycle of high-cost debt. Proceed with caution when reviewing these kinds of lenders.

Final thoughts

A personal loan can be a tool that allows you to accomplish your goals or cover an emergency. However, it’s important to be aware of the personal loan requirements so that you’re prepared ahead of time. If you keep these requirements in mind and work regularly to have a good credit profile, you’ll be more likely to qualify for a personal loan when you need one.

Ready to submit your application? Check out some top personal loan lenders to get started.

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