4 personal loan requirements

According to a January 2024 survey of senior loan officers, lending standards have tightened for personal loans and are likely to tighten further this year. This means getting a personal loan from a bank, credit union or online lender is harder than it used to be. But knowing what lenders are looking for can put you in a better position to be approved.

Every lender sets its own minimum requirements, but many look at the same general criteria to assess personal loan eligibility — income, current debt, credit score, and the loan's intended purpose.

1. Credit score and history

Personal loan lenders consider your credit score and history to see how you manage credit and how likely you are to repay a loan. Most have a minimum credit score requirement — which often varies between lenders. But in general, a 670 FICO score or above puts you in a position to be considered by many lenders. However, an excellent credit score, or a FICO score above 800, is typically required to qualify for the lowest personal loan interest rates.

If you have bad credit, a FICO score below 580, you’re not necessarily out of luck, as some lenders specialize in bad-credit personal loans. For example, Avant has a minimum credit score of 550. But it’s important to apply with lenders who will consider applicants with bad credit. This is not only to avoid rejection, but also because a lender will pull your full credit report once you apply, which results in a hard credit inquiry. Hard inquiries can ding your credit score for up to a year.

How to prepare

Before you apply for a personal loan, review your credit report for errors. You can get a free copy from each of the bureaus at AnnualCreditReport.com. If you find anything amiss, dispute the error with the bureau that reported it. Errors could be dragging down your score, which could keep you from qualifying for a personal loan or increase your rate. Once you know your credit score, go through the prequalification process with many lenders and check potential rates without hurting your credit score.

2. Income and employment

While your credit score offers a glimpse into your past payment history, your income and employment are used to determine whether you can repay the loan in the future. When you take out a loan, you’re responsible for monthly payments, and lenders want to be assured that you have sufficient income and employment stability to handle the expense.

Minimum income requirements can vary widely by lender. For example, Discover requires an individual or household annual income of $25,000, while Upstart requires borrowers to have an annual income of $12,000. BHG, on the other hand, requires an annual income of $100,000 to qualify.

In addition to W-2 wages, income sources include self-employment income, unemployment benefits, alimony, child support, freelance work, Social Security benefits, investment and rental income, and possibly spousal income, depending on the lender.

Employment verification and other income sources

As part of the personal loan qualification process, lenders will ask for documents to verify your employment and income. These may include:

• An offer letter
• Employment verification letter
• Pay stubs
• Tax returns
• Bank statements
• Documentation of Social Security or other benefits

Failure to provide the proper documentation may lead to lenders rejecting your personal loan application.

How to prepare

Note your total annual income, including bonuses and any passive income, such as that from rental properties or investments. Research minimum income requirements by lender so you know which may consider your application. If you’re self-employed, be ready to provide one or more tax returns; if you have an employer, pay stubs and bank statements may be sufficient.

3. Debt-to-income ratio

Lenders typically review your debt-to-income ratio (DTI) and may have a maximum DTI as part of their personal loan requirements. DTI is the percentage of your monthly gross income that goes toward monthly debt payments and is one way for lenders to assess your financial well-being — and see if you’re overextended.

The lower your DTI, the better. Maximum DTI ratios depend on the lender, but 35% or less is ideal. You may still get approved with a higher DTI. For example, Upstart has a maximum DTI of 50% for most states, and a DTI of 45% for consumers in Connecticut, Maryland, New York, or Vermont.

DTI example

You can calculate your DTI by taking the sum of your monthly debt payments and dividing it by your gross monthly income. To get the percentage, you’d take that amount and multiply it by 100. Suppose you have the following monthly payments, and a $5,000 monthly income before taxes:

Credit card: $100

Student loans: $250

Auto loan: $400

Using the numbers above, total monthly debt payments equal $750. When you divide $750 by $5,000 (monthly income), you get 0.15. Taking that number and multiplying by 100, you get a DTI of 15%.

How to prepare

If your DTI is high, see if you can lower it before applying for a personal loan. For instance, if you run up a credit card balance but pay it off each month, consider paying off any charges you make the same day you make them, or using a debit card or cash instead. Why? Credit card companies report to the credit bureaus on a monthly basis, but not necessarily after you’ve made your monthly payment. In other words, even if you pay off or pay down your balance each month, your DTI could still look high to lenders.

Another way to reduce your DTI is to increase your credit limit. You can request a credit limit increase with your credit card company and may be granted one automatically. You could also ask a close friend or family member if you can become an authorized user on their card. That card will then go on your credit report, along with the available credit line. This can backfire, however, if the person who adds you as an authorized user maintains a high balance or misses payments.

4. Loan purpose

How you want to use a personal loan is often very important to lenders. Personal loans can generally be used for a wide range of purposes, including home improvement, debt consolidation, medical emergencies, and moving. But not all lenders approve all purposes. For instance, some lenders, like Happy Money, only approve personal loans for debt consolidation.

Personal loans generally can’t be used for:

• Investing
• Home down payment
• School tuition
• Business expenses

Outside of these examples, you can use a personal loan for many different reasons. If you’re unsure, check each lender’s permissible loan purposes.

Additional requirements

Some lenders require additional items, depending on the type of loan or your credit score. 

Origination fee

Many lender charge origination fees on some loans, especially to borrowers with fair or bad credit. The lower your credit score, the higher the origination fee is likely to be. Fees tend to run from 0% to 12%, depending on the lender, and are charged upfront. For example, if you have a $10,000 personal loan with a 5% origination fee, $500 (5% of $10,000) would be taken out of the loan proceeds — you'd receive $9,500. 

If you have good credit or excellent credit, you're more likely to qualify for a personal loan with no origination fees.

Collateral

Most personal loans are unsecured, but a few lenders offer secured loans, which means the loan has collateral attached to it. Collateral is an asset you own, like a savings account or vehicle. When you pledge collateral on a loan, you may be able to get a lower interest rate, but the asset can be seized by the lender if you default on the loan. Since the lender has less risk in making a secured loan, secured loans can be a good option for borrowers with fair credit and bad credit. 

For example, Navy Federal offers loans secured by a savings account or certificate of deposit for rates that are just 2% to 3% higher than the interest rate on the account. 

What documents are needed for a personal loan?

During the application process for a personal loan, you typically need to submit the required documents for the lender to review.

What do I need to apply for a personal loan?

• Driver’s license or passport
• A utility bill or lease to show proof of residence
• Recent pay stubs
• Bank statements
• Tax returns
• Other documents as required by the lender

As part of the personal loan application, you may also need to provide your full name, date of birth, Social Security number (SSN), email, and banking information.

How to qualify for a personal loan

Qualifying for a personal loan is a matter of fulfilling the lender's specific requirements and providing the required documentation. That's why it's important to know your FICO credit score, DTI, and total income; and to have necessary documentation on-hand before applying. You'll need to apply with a lender that approves your specific loan purpose as well. But in general, it's best to have a:

• DTI below 36%
• Source of regular and reliable income
• Good credit, or a FICO credit score above 670
• Approved loan purpose

If possible, take steps to reduce your DTI and improve your credit before applying. Then, research lenders that fit within your criteria, and prequalify with more than one to compare loan options as well as potential rates and repayment terms. 

Can I get a personal loan with bad credit?

If you have bad credit, you may still be able to qualify for a personal loan — but not with all lenders. There are specific lenders that consider borrowers with bad credit, including some that review more than just your credit score to see if you're eligible for a loan. For example, Upstart may consider applicants without credit scores if they are enrolled in or have graduated college.

Take steps to improve your credit, income, and DTI before applying, if possible. If you get approved, prepare to pay a high annual percentage rate (APR). Many personal loan lenders cap APRs at around 36%. But some emergency lenders have even higher APR caps. For example, the maximum APR for a loan through OppLoans is 179%.

Also consider other options, like getting a secured personal loan or applying with a cosigner. A cosigner uses their good credit and income to help you qualify. But they’re also on the hook if you miss payments, and any late payments can damage their credit as much as your own. Not all lenders offer personal loans with cosigners.

What to do if your personal loan is denied

After you apply for a personal loan, you’ll either be approved or denied. If you get denied for a personal loan, there are some things you can do.

Check the reasons for your denial with the personal loan lender. Lenders must provide the reasons for your application denial, based on requirements under the Equal Credit Opportunity Act. The reason will guide your next steps, which can include:

• Correcting any errors in your application
• Providing additional documentation
• Lowering your DTI, which can be done by increasing your income, decreasing your debt, or increasing your credit limit(s)
• Reviewing credit reports for mistakes at AnnualCreditReport.com and disputing them, if applicable
• Raising your credit score through on-time payments and low credit utilization
• Using a credit-builder loan to build credit
• Getting a cosigner

Frequently asked questions

Can a pre-approved personal loan be denied?

You can be denied for a personal loan after being pre-approved because the prequalification process isn’t as thorough as a formal application. Once you apply, the lender pulls your full credit history and report and takes your full application into account — which could raise red flags that weren’t apparent during the prequalification process.

What are the requirements for a personal loan?

To qualify for a personal loan, you typically need to meet the minimum requirements set by the lender. This often includes having a minimum credit score and income, and not exceeding a maximum DTI. Plus, you’ll need to use the loan for a purpose that the lender approves. Once you apply for a personal loan, documentation requirements usually include a government-issued ID, pay stubs, and proof of residence.

Can I get a loan without a job?

Can you get a loan without a job? The answer is, it depends. You may qualify for a personal loan if you have other income sources and, ideally, a strong credit score. But you might have better luck applying for a secured loan, which uses an asset of yours as collateral. Since the lender can seize the collateral if you stop making payments on the loan, it can be easier to get approved for a secured loan.