Personal loan requirements and eligibility

A great way to boost your financial confidence is to learn exactly how financial products work. Applying for a personal loan should be a lot less intimidating when you're certain you know what to expect from start to finish.

That's not all, though. The more you know about how personal loans work, the better you can shop around, find favorable terms, and even improve your ability to get approved for a loan.

One good place to start is with learning what it takes to get a personal loan in the first place. Let's explore the basic requirements to apply, what lenders generally look at for approval, and how to make yourself the best applicant you can be.

Key personal loan eligibility factors

You'll need to meet some very basic requirements to apply for a personal loan from pretty much any lender in the U.S. Besides those, every lender will have its own specific criteria they use to approve (or reject) personal loans applications. 

What are the basic requirements for a personal loan?

At a minimum, you'll generally need these to apply for a personal loan:

• Be at least 18 years or older

• Have proof of U.S. residency

• Have an active bank account

Some lenders might approve non-U.S. residents, but that's rare. The bank account is required so the lender has somewhere to deposit your funds, as most lenders do this via a direct transfer.

What are the eligibility criteria for a personal loan?

Beyond the basic requirements, you'll also need to satisfy eligibility criteria set by the lender to be approved for a personal loan. This will vary a lot by lender and loan, but typically includes:

• A credit score of Fair or better. Most lenders prefer a minimum FICO credit score of 600 to 640 for approval, and a score of 700+ for the best interest rates.

• Steady, sufficient income. How much income you need will depend a lot on the size of loan you want. Lenders may ask for proof of income, such as a W-2 or tax return.

• Manageable existing debt. To figure out if you can afford more debt, lenders look at your debt-to-income (DTI) ratio, which is your monthly debt (plus housing) divided by your monthly pre-tax income. Lenders usually prefer a DTI below 36%, but some will accept a DTI under 43%.

• Stable employment history. Lenders want to know you can afford your debt for the full length of the loan. A history of stable employment (or stable income if you're self-employed) could help your application.

Required documents for a personal loan

Personal loans come with a certain amount of paperwork. You'll need to fill some out, and provide some of your own. Here are the documents you may need to get a personal loan:

• Government-issued ID (like a driver's license or passport)

• Social Security number

• Proof of income (paystubs, W‑2s, tax returns, or bank statements)

• Employer contact information

• Proof of address (such as a utility bill or lease agreement)

• Bank account and routing number for receiving your funds if approved

What determines if you get approved for a personal loan?

There is no one single thing that determines your eligibility for a personal loan. Lenders will look at all of your qualifications to decide on your application.

And that's a good thing! It means that you could still be approved even if you're weaker in one area as long as you're stronger in another. 

For instance, lenders will look at both your credit history and your DTI together. If you happen to have a lower credit score but your DTI is in great shape, you could still get approved. Similarly, if your DTI is a little on the high side but your credit is excellent, the lender may be more willing to approve your application.

That's one of the reasons lenders will work to verify all of your information. Proving a strong income and work history could help offset a weaker credit score—or vice versa.

Common reasons personal loan applications are denied

Sadly, not every loan application gets approved. Here's why your application could have been denied:

• Your DTI is too high. Most lenders like a DTI below 36%, though a strong credit score could still help you get approved with a DTI up to 43%. 

• You asked for too much money. If the loan you ask for is too large, it'll make your DTI too high and you could get denied.

• Your credit score is too low. Generally, the higher your credit score, the better your chances of being approved. A lower score typically needs to be offset with a low DTI.

• The lender couldn't verify your income or employment. Lenders won't approve a loan if they can't make sure you can make your payments.

• The lender couldn't verify your identity. Lenders aren't allowed to lend to you if you can't prove you are who you say you are.

• You have recent delinquencies or a bankruptcy on your credit report. A single late payment isn't going to immediately disqualify you, but a major negative on your report—especially a very recent one—could get your application denied.

• You have too many recent credit inquiries. Each time you apply for credit, a hard inquiry is marked on your credit report. If you have a lot of recent inquiries, lenders could think you're trying to take on too much debt at once.

How to improve your personal loan eligibility

You have more power over your approval than you might think. Try these tips for improving your eligibility:

• Lower your DTI. If your DTI is on the cusp of being too high, getting it down even a couple of points could go a long way. Paying down your credit card balances could help.

• Improve your credit score. A few more months of on-time debt payments or reducing your card balances could give your score the boost it needs.

• Double-check your documents. Avoid delays by making sure all your T's are crossed and I's are dotted so the lender can verify everything quickly.

• Request only the amount you need. A smaller loan could impact your DTI less, making it easier to get approved.

• Add a co-signer to your application. If your credit is a problem, a co-signer with good credit could make all the difference. Make sure you have a solid plan for repayment, however, as your co-signer will be on the hook both legally and financially.

Personal loan lenders look at the complete picture when evaluating your application. Anything you can do to look like a more reliable borrower could help you get approved.

Ready to get started? You can check your rates through Achieve Personal Loans with no impact to your credit.