Personal loan requirements vary between lenders, but there is some data, like your credit score and income, that all lenders require to approve you for a loan. That’s why it’s a good idea to know what information and documents are needed before approaching a lender. Here’s a look at five common requirements that most lenders will require to assess a loan application:
Credit score: A person’s credit score is one of the most important details that lenders take into consideration. Credit scores range typically between 300 and 850 and are based on data like your payment history, outstanding loans, and the length of credit history. Most lenders would require a minimum credit score of 600 to consider your loan application, but you can also find lenders who are ready to lend without any credit history (at exorbitant interest rates and other tough conditions, of course).
Income: Lenders usually insist on a minimum income requirement to ensure that the borrower has the means to repay the loan. The minimum income requirement varies from lender to lender. For instance, SoFi has a requirement of $45,000 per year, while Avant requires just $20,000 per year. However, many lenders do not disclose their minimum income requirement condition openly.
Debt-to-income ratio: Debt-to-income (DTI) ratio represents how much debt you have in relation to your income. A DTI of less than 36% is considered good by most lenders. However, some lenders will require a DTI of up to 50%.
Collateral: If you are applying for a secured loan, you will be required to pledge some assets (known as collateral) in exchange for the loan. In the case of vehicle or home loans, the car or home itself serves as the collateral. You can also use other assets like cash accounts, investments, real estate, or jewelry as collateral for personal loans. Fortunately, most personal loans are unsecured, so will likely not be asked to submit collateral.
Origination fees: You may be asked to pay a personal loan origination fee, in order to close the loan. This fee covers the costs of application processing, making credit checks, etc., and it ranges between 1% and 8% of the total loan amount, which again depends on your credit score and the loan amount.