7 personal loan requirements and how to qualify

Getting a personal loan can generally be a quick and painless process if you know what you need to get one. While there’s no baseline requirement to get a personal loan, most lenders have similar eligibility criteria that you’ll need to meet.

Here are the main personal loan requirements along with how to qualify for a personal loan.

Personal loan requirements

While personal loan requirements can vary by lender, here are some general qualification criteria to expect when applying:

1. Good credit

Most personal loan lenders require good to excellent credit — a good credit score is usually considered to be 670 or higher. So before you apply, it’s a good idea to check your credit reports and your credit score to see where you stand. 

In general, the higher your credit score, the more likely you are to qualify. You’ll also typically need good to excellent credit to get approved for both the best personal loan rates available and the largest loan amounts. 

Conversely, if you have a low credit score, you could have a harder time finding lenders to work with. While there are some lenders that offer personal loans for bad credit, these loans tend to have higher rates and more fees compared to good credit loans. You might also have to agree to a smaller personal loan.

Tip: If your credit is less than stellar and you can wait to borrow, it could be worth taking the time to improve your credit before applying for a personal loan. There are several potential ways to build your credit, such as making sure all of your bills are paid on time and paying down credit card balances.

2. Verifiable income

Income and employment criteria vary by lender. Some might have a minimum income requirement while others could request proof that you’ve worked at your current employer for a set amount of time.

In most cases, you’ll need to prove to the lender that you can reasonably afford to responsibly repay your loan. For example, you might have to provide pay stubs, tax returns, W2s or 1099 forms when completing an application. 

3. Low DTI ratio

Lenders also consider your debt-to-income (DTI) ratio, which compares your income to the amount of debt you already have. Having a low DTI ratio means you’re more likely able to afford to take on a new loan. A high DTI ratio, on the other hand, can be a red flag to lenders as it means you might struggle to repay your loan — especially if you have a financial emergency. 

Generally, lenders want to see a DTI ratio no higher than 35% to 40% when applying for a personal loan. In some cases, exceptions might be made if you have good credit with a higher DTI ratio — but this will depend on the lender.

4. Proof of identity

To make sure you aren’t stealing someone’s identity and committing fraud, lenders will require proof of identity when you apply. This generally means providing your driver’s license, passport or another form of ID. 

5. Proof of address

You’ll also usually need to provide proof of where you live. In addition to adding another layer of protection against fraud, it also tells lenders your living situation. For example, if you can prove that you’ve been living at your current address for some time, it can show lenders that you have solid living circumstances.

6. Permitted loan use

While you can take out a personal loan for nearly any expense, most lenders will ask you what you’ll be using the funds for when you complete an application.

Note that some lenders have restrictions on what you can use a personal loan for. For example, you typically can’t take out a personal loan for college tuition or a mortgage down payment. You also can’t use the funds for anything illegal. 

7. Collateral

While most personal loans are unsecured, some lenders also offer secured loans that require collateral, such as a vehicle or other valuable property.

Because secured loans are less risky for lenders, they can be easier to qualify for compared to unsecured loans. They also tend to have lower interest rates. However, you could lose your collateral if you don’t keep up with your payments.

No need for collateral: See the best unsecured personal loans

Personal loan documents to remember

Before you begin a personal loan application, be sure to gather your documentation to make the process easier. You’ll generally need the following:

• Driver’s license or another government-issued form of identification.
• Employer information, pay stubs or statements for other sources of income (such as if you’re self-employed).
• W2s, tax returns or 1099s.
• Utility bills (for address verification).

Also be prepared to provide loan information, such as how much you want to borrow, your desired repayment term and what the loan funds will be used for.

Tip: Be sure to respond to any lender request for additional documentation as quickly as possible to avoid delays in the approval process.

How to get a personal loan

If you’re ready to get a personal loan, follow these steps:

1. Check your credit. Before you apply, review your credit reports with a site like AnnualCreditReport.com. Dispute any errors with the appropriate credit bureau — Equifax, Experian or Transunion — to potentially boost your credit score. Also check your actual credit score. You can often do this through your bank or credit card issuer.
2. Compare lenders and pick a loan option. Be sure to shop around and compare your options with as many lenders as possible. This will help you find a loan that works for your needs. Consider each lender’s requirements as well as other important factors like interest rates, loan amounts and repayment terms. Many lenders let you get pre-qualified with only a soft credit check to see what rate and terms you might get approved for if you apply. Once you’ve done your research, pick the lender you like best.
3. Complete an application. After you’ve chosen a lender, you’ll need to complete a formal application (remember to gather your documentation first). While online personal loan lenders generally offer a fully digital application process, traditional banks and credit unions might require you to visit a local branch. 
4. Get your funds. If you’re approved, the lender will have you sign a loan agreement before disbursing your money. Funding usually takes about a week after approval — though some lenders fund their personal loans as soon as the same or next business day. 

Find the right personal loan for you: Compare the top personal loans

Alternatives to taking out a personal loan

If you don’t qualify for a personal loan or want to explore other options, here are some alternatives to consider:

• Credit card: Unlike a personal loan, a credit card gives you access to a revolving credit line that you can borrow from repeatedly. Some cards also come with a 0% annual percentage rate (APR) introductory period — if you can repay your balance before this period ends, you can avoid interest. However, if you can’t pay off the card in time, you could end up with significant interest charges. Plus, credit cards generally have higher interest rates than personal loans.
• Home equity loan: If you own your home, a home equity loan lets you tap into the equity you’ve built. Like a personal loan, you’ll receive a lump sum to use how you’d like. A home equity loan is secured by your home, which reduces the risk for the lender. This usually results in a lower interest rate compared to a personal loan. But it also means you could lose your home if you can’t keep up with your payments.
• HELOC: Another potential option if you own your home is to apply for a home equity line of credit (HELOC). HELOCs are similar to credit cards in that you can borrow money as needed and only pay interest on the amount you use. However, they pose the same risk of foreclosure as a home equity loan if you fail to repay what you borrow. HELOCs also usually have variable rates, which can fluctuate based on market conditions.

Frequently asked questions (FAQs)