How do you get an unsecured personal loan approval? Unsecured accounts do not involve the pledging of collateral (house, car, boat).
This makes the transaction riskier for online lenders. They respond with stricter qualifications.
Pay close attention to the three primary eligibility criteria: credit scores, income and affordability, and documentation to verify key facts.
Make the underwriting process go as smoothly and quickly as possible. Be prepared. Know what lenders look for in advance.
Personal Loan Credit Score Requirements
Credit scores are the first personal loan approval requirement most consumer consider. The minimum rating varies by the type of lender.
- Banks operate brick and mortar branch offices. They target prime borrowers and offer lower interest rates to attract business. Banks typically require higher credit scores (680 and above).
- Credit Unions are non-profit institutions that serve local geographic areas, company, and industry groups. You may need to pay a small fee to become a member. Credit Unions also target prime borrowers with scores of 680 and above.
- Online lenders operate over the internet and serve prime (680+), near-prime (620-680), and sub-prime (below 620) borrowers. These online companies offer an array of interest rates and origination fees matching your credit score.
People with no credit history and those with a bad record must perform well on the final two criteria: income and documentation. Adding a responsible established co-signer to the application also helps qualifications.
Personal Loan Income Requirements
Income is a second personal loan approval requirement that many people overlook and misinterpret. Consumers need to have enough free cash flow to make their monthly payments affordable.
Your Debt-to-Income (DTI) ratio is the primary measure of affordability. You calculate DTI by dividing monthly debt service payments by monthly income.
- Small principal amounts lower your DTI. The less you borrow the less you must repay each month. This helps you build a positive record.
- Long-term repayment schedules lower the monthly payment but cost more over time. The interest has more time to accumulate.
- Higher income means better affordability (lowers the DTI). Include all sources of income including child support, alimony, government benefits.
Personal Loan Documents Needed
The best way to shorten the personal loan approval is to provide the lender with all the needed documentation upfront. People concerned about how long the process takes should look in the mirror first.
Borrowers are in control of providing accurate and complete documentation of their income, employment, age, and identity. Lenders need this information to make a confident underwriting decision.
- Proof of income is the most important document
- Paystubs for w2 employees
- Tax returns for self-employed
- Employer name, address, and phone number allows lenders to verify employment
- A driver license number confirms your date of birth, home address, and driving record
- Bank routing and account numbers add an extra identity verification
- Allows quick deposit after an approval
- Automatic drafting assures prompt repayment