Personal Loan Requirements To Know Before Applying
Are you dealing with an unexpected expense? Learn more about personal loan requirements and whether it makes sense for you.
![Woman in front of laptop writing on paper](https://aplusfcu.org/wp-content/uploads/blog/img/personal-loan-requirements-to-know-before-applying_jul24_blog.png)
Personal loans offer many advantages to borrowers, including flexibility in how to use the funds. They usually have a higher maximum loan amount, making them ideal for those looking to borrow larger sums of money. In addition, most personal loans have fixed interest rates, so you don’t have to worry about annual percentage rates changing.
If you’re planning to apply for a personal loan, be as prepared as possible to increase your chances of getting approved. Most credit unions have similar eligibility requirements, others have specific loan qualifications. For example, one lender might require a higher credit score than others.
Here are some ways you can prepare before you apply for a loan to ensure a seamless experience. Also, learn common reasons for loan denial and what you can do to set yourself up for success.
How Do I Know If I Qualify For A Personal Loan?
Before applying for a personal loan, ask yourself these questions about the loan you’re looking for. When it comes to reviewing your application, credit unions will ask for documents to verify your information. They’ll also check certain qualifying factors, including your credit score, income, and debt-to-income ratio (DTI), to help them assess your ability to repay and determine your interest rate.
Preparing for these personal loan requirements will give you your best chance.
Proof Of Identity
Verifying your identity is the first step any lender will take in the loan approval process. They’ll require one to two forms of identification – usually a government-issued photo ID – and will typically accept the following:
- Driver license
- Certificate of citizenship
- Passport
- State-issued ID
If you’re sending in your requirements electronically, take clear photos. That way, your lender can verify your identification quickly, avoiding delays.
Proof Of Address
Your lender will also ask for proof of address to verify your current address and how long you’ve been a resident. You might not be eligible for a personal loan if you’re new to the area or move around a lot. You can present any of the following documents to satisfy this requirement:
- Utility bill
- Mortgage statement
- Proof of home or car insurance
- Property tax receipt
- Voter registration card
- Bank or credit card statement
The US Postal Service can help you if you need a change of address confirmation – available at your local post office or online.
Annual Income
Your annual income is crucial for loan approval because your lender wants to know if you can repay them. That’s especially true for personal loans because lenders don’t require collateral. You can present the following documents as verification:
- Tax returns
- Pay stubs
- 1099s and W-2s
- Bank statements
- Employer’s contact information
These documents should be available online through your payroll provider’s database. You can also ask your employer’s payroll or human resources department for them. If you’re self-employed, you might have to ask your CPA to help with the tax forms or have an alternate way to verify your income.
While sufficient employment income is the usual way to eligibility, lenders will also consider other sources of funds, like Social Security benefits and alimony.
Debt-To-Income Ratio
Your debt-to-income (DTI) ratio is a percentage that shows how much of your gross monthly income goes to debt repayments. Your DTI is a crucial factor for lenders because it indicates your ability to repay current and new debts. They also use this percentage to help ensure your loan won’t exceed your budget.
While different credit unions will have varying DTI requirements, the standard qualification is 36% and below. However, some lenders might approve highly qualified applicants even if they have high DTIs in the 43% to 50% range. You can calculate yours by dividing your monthly debt repayments by your pre-tax income.
Credit Score
Because there’s usually no collateral to back personal loans, your credit score is crucial in your loan eligibility. It tells lenders how good you are at managing credit. That generally means the higher your credit score, the more trustworthy you are in the eyes of credit unions and other lenders.
If you want to increase your chances of getting approved for a personal loan, aim for a credit score of 640 or higher. Some lenders might accept lower scores, but it means higher interest rates and less favorable terms for you.
Credit History
Aside from credit scores, credit unions also look at potential borrowers’ credit histories. They want to assess your financial habits to gauge your likeliness of paying off your loan. Through your credit reports, they can see information like your payment history, open credit accounts, and major events like foreclosures and bankruptcy.
Lenders want a pristine record of punctual debt repayments and low outstanding debt. If you have several missed payments or a loan default, lenders might take that as a sign that you’re a risky borrower.
![A couple standing on a porch, their backs are to us, and there is an open laptop on the table in front of them.](https://aplusfcu.org/wp-content/uploads/global/ctas/life-guidance-cta/life-guidance-global-ctas_rebuilding-credit_aug22.jpg)
![](/wp-content/themes/aplusfcu/images/dist/angle_cta-gray-right.png)
(Re)Building Credit
Credit is factored into many decisions, including loan approvals, housing applications, insurance rates, and employment opportunities. To obtain the most favorable outcomes, it’s important to understand the basics of credit scores and credit reports.
Loan Purpose
Personal loan lenders don’t place many restrictions on how you choose to use your funds. You can use the money for any legal purpose, including medical expenses, home upgrades, or debt consolidation. You can even pay off wedding fees, adoption costs, and other big-ticket purchases.
However, most lenders won’t let you use your loan for small business expenses, college tuition, or real estate purchases. Of course, gambling is off the table too. It’s crucial to be transparent with your loan purpose and find a lender that aligns with your intentions.
Why Personal Loans Get Denied & How To Improve Your Chances
When applying for a personal loan, there’s no guarantee you’ll get approved. Fortunately, credit unions and other lenders will tell you the basis for their decision. They’re required by law to provide an adverse action notice if they deny you, which could include the following reasons:
Low Credit Score
A low credit score can hurt your loan approval odds. Even if you get approved, you’ll likely shoulder a higher interest rate than those with high credit scores.
If your credit score is too low to get a reasonable rate, work on improving your credit score before applying. You can do this by paying off your debts and following payment schedules. In addition, ensure there are no mistakes in your credit reports – access them for free at AnnualCreditReport.com.
High Debt-To-Income Ratio
A high DTI ratio also lowers your chances of loan approval. It tells lenders that an additional monthly expense could leave you struggling financially.
Pay off your debts before applying for a personal loan to increase your chances of approval. You can fast-track your progress by paying off small balances first. That way, they won’t contribute to your DTI anymore.
Unstable Or Insufficient Income
Lenders want to ensure you have enough funds to cover your monthly payments. Inconsistent or inadequate income could lead to a loan default.
If you’re in this situation, consider applying for the loan with a co-signer or co-borrower with a stable source of funds. Be mindful that you’ll affect their credit score if you miss payments or default on your loan. You can also ask your employer for a raise or look for a side hustle to boost your income.
Wrong Loan Intent
While most lenders are lenient with loan usage, most don’t allow borrowers to use the funds for business, education, and real estate expenses. Having the wrong loan intent can lead to a denial.
Consider the purpose of your loan and choose your lender accordingly. Some lenders specialize in specific loan uses. For example, some run debt consolidation programs while others offer secured personal loans with collateral.
High Loan Amount
Lenders base your maximum loan amount on what you can pay monthly. Requesting a figure higher than that could end with a denial. Instead of taking your chances with a steep amount, request a realistic figure that suits your financial situation.
Achieve Financial Goals With An A+ Personal Loan
A+ Federal Credit Union offers personal loans to its members to help them achieve their financial goals. With an A+ Personal Loan, you’re free to use your funds for various needs.
It can cover expenses like home upgrades, medical expenses, and large purchases. You can also use it for high-interest credit card debt consolidation. With A+FCU, borrow up to $50,000, with rates as low as 8.99% APR,* and terms up to 84 months.
A+FCU can help you get on the path to financial wellness and living your A+ life!
*APR=Annual Percentage Rate. 8.99% APR is for up to 84 months and includes 0.25% rate reduction for automatic payment from A+FCU account or electronic funds transfer from another financial institution. Cannot use PlusPoints to lower rate. Actual rate may vary depending on each individual’s credit history and underwriting factors. Rate may increase if automatic payment is cancelled. $16.08 per $1,000 per month for 84 months. Minimum loan amount of $2,500. Terms from 6-84 months. Maximum 18.00% APR. Rates as of 9.6.2024.
![A couple sits on the floor looking at blueprints.](https://aplusfcu.org/wp-content/uploads/global/ctas/shared-cta/standard-global-ctas_apply-for-a-personal-loan_aug22.jpg)
![](/wp-content/themes/aplusfcu/images/dist/angle_cta-green-right.png)
Apply For A Personal Loan
Enjoy more freedom with your money. Use an A+ Personal Loan for your personal expenses at a great low rate.
Related Articles
Adulting 101: How To Create Your First Budget
![Woman looking over documents and working on a laptop.](https://aplusfcu.org/wp-content/uploads/blog/img/adulting-101-how-to-create-your-first-budget_aug24_blog.png)
Learning to manage money on your own can seem overwhelming. Here are step-by-step tips to help you create your first budget.
16 Months Of Financial Tips
![Two people talking, they are in professional clothing.](https://aplusfcu.org/wp-content/uploads/blog/img/planner_blog.jpg)
Use these monthly financial tips to break down your top financial tasks and to-dos and get on the right path to being financially healthy.
What Are The Benefits Of Online Banking?
![Young girl looking at her cell phone](https://aplusfcu.org/wp-content/uploads/blog/img/what-are-the-benefits-of-online-banking_aug24_blog.png)
Everything has an online presence these days — even your credit union! Learn all the benefits of online banking.