You may find yourself tight on money and want to fall back on credit cards, loans, and other accommodations. Whether you’re making a large purchase or consolidating debt, you can use a personal loan for just about anything. It can be a helpful financial tool if you need extra funding.
Before looking for a loan, familiarize yourself with the qualifications for approval. While every lender is different, most follow the same process when evaluating. Here are basic personal loan requirements you should know to improve your chances of qualifying.
A Steady Income Is Required
Most lenders require borrowers to have a steady income to get approved. They want to be certain you can repay the loan at a constant rate. Note that some lenders have an income minimum and require proof of employment.
Rule of Thumb: Even if the lender doesn’t have an income requirement, you shouldn’t borrow more than your salary.
Some Loans Require Collateral
Another personal loan requirement you should know is that you may be required to put up an asset for collateral. Secured personal loans demand that recipients pledge valuable assets, such as vehicles, properties, investment accounts, or precious metals. If you fall behind on payments, the lender could take these items as collateral to pay off the remaining balance.
What’s Your Debt-to-Loan Ratio?
The debt-to-income ratio represents your monthly gross income compared to your monthly debt. Lenders use this ratio to predict your ability to pay for your new loan and current debt. Some lenders require you to have a DTI of less than 35 percent while others will allow a higher percentage.
You Need a Satisfactory Credit Score
A higher credit score shows lenders you’re a trustworthy borrower. Lenders will protect themselves from risks by only lending to people with high credit scores. You should check your credit history, and work on raising your score if it’s lower than 630. However, some personal loan lenders will help you even if your credit score is low.
At Superior Financial, we believe in transparency with our borrowers. We hope our brief guide to personal loan requirements will help you narrow your list and plan for the future. If you want to build your credit, contact our agents to see which loan is best for you.