Qualifying for a loan: How much personal loan can I get?

A lot goes on behind the scenes when you apply for a loan. It's smart to learn how it works, since that knowledge could help you feel more confident when you apply. 

Even better, determining how much you might qualify to borrow really isn't very hard. It might even be possible for you to improve your qualifications once you understand what goes into the loan approval process.

What determines how much personal loan I can get?

When you apply for a loan, lenders consider several factors to try to predict the chance you'll repay your loan as agreed. The most important ones are credit, income, and existing debt.

How does my credit score determine if I get approved?

Many lenders set minimum credit scores based on their tolerance for risk. Lenders associate higher credit scores with a lower risk that you won't repay the loan. That's why the most critical factors in your credit score are your repayment history. 

Lenders will also want to see your credit utilization, or how much of your available credit you're currently using. High utilization could suggest to lenders your finances are stretched a bit thin right now.

Does income affect how much personal loan I can get?

Some personal loan programs have minimum income guidelines, but many don’t. The thing to know is that your income is a crucial part of your debt-to-income ratio, or DTI. That's the relationship between your income and the amount of debt you're carrying.

Lenders want to make sure you can afford to repay your loan. So, they'll look at your income and at your existing debt.

How does my debt impact how much I can borrow?

Along with your income, lenders look at your existing debt to calculate your debt-to-income (DTI) ratio. What’s a good DTI ratio for personal loans? For most lenders, below 36% is ideal but a DTI below 43% is still good if your credit is good. A DTI over 50% could make it difficult to borrow money.

To calculate your DTI, add up your monthly debt payments plus your housing cost, and divide that by your monthly income (before taxes).

For example, let’s say you earn $6,000 a month before taxes are taken out. Every month, you pay $1,500 for rent, $600 for your car payment, and $400 in credit card minimums. Your DTI would look like this:

• $1,500 + $600 + $400 = $2,500 

• $2,500 / $6,000 = 0.42 = 42%

When you apply for a new loan, the lender will calculate both your current DTI and how your DTI would change if you were approved for the loan. If the loan would push your DTI too high, you could be denied the loan or offered a lower amount.

Borrowing is a numbers game

Don't be discouraged if your credit score or DTI is a bit less than perfect. Many applicants are stronger in some areas and weaker in others. Lenders consider the full picture when underwriting your application. If you're poor or fair in one category, being in the good range for another could help you out:

Assuming that you meet the lender's minimum guidelines for loan approval (and these vary among personal loan providers), your profile determines how much you might borrow. The stronger you are, the more money you're likely to get. 

What else do personal loan providers consider?

Your income and credit score are the biggest factors in determining how much you can borrow with a personal loan. However, lenders may also look at some other considerations:

Work history. Lenders want to know that your income is reliable and ongoing. They often ask for a paystub, W-2 forms, or profit/loss statements to make sure your income is steady. 

Co-borrowers or co-signers. Adding someone to your loan application could give lenders extra confidence, especially if the additional person has great credit or income. Anything that improves the DTI for your loan could increase what you're allowed to borrow. 

Loan purpose. Your reason for borrowing could matter for qualifying purposes. If you're borrowing for debt consolidation, for instance, some lenders may accept a higher DTI since you'll be reorganizing your debt rather than adding to it.

Lender policy. Most lenders offer a wide range of potential loan amounts, and getting a certain amount depends on your credit, income, and debt. Stronger credit and lower existing debt usually mean a higher approval amount and better rates.

What determines how much you can get?

Your credit score matters, but the loan amount is most heavily influenced by your DTI. Your debt-to-income ratio—including your new loan payment—must meet your lender's guidelines for approval. 

Here's an example of how that might work:

• Let's say your lender will accept a DTI up to 40%. 

• Your household's gross monthly income is $5,000 per month. Every month, you pay $1,000 for rent, $300 for your car payment, and $200 in credit card payments. Your monthly debts add up to $1,500.

• That means your current DTI is $1,500 / $5,000 = 30%. 

• In this case, you could manage a personal loan payment of up to $500 a month without pushing you over the lender's maximum DTI.

From there, you can run the numbers to see how that would translate to a loan amount. What loan amount has a $500 payment? It depends on the loan term and interest rate. 

Payments on a five-year loan at 13% would look like this at various loan amounts:

So, in the example above, you could potentially be approved for a five-year loan up to $22,000 with this lender. Your credit history would still play a part in the amount and rates you're offered.

Increase your borrowing power by paying off debt

How can you increase your loan approval amount? Improving your credit score could help. You can also focus on improving your DTI by increasing your income or paying down existing debt.

Continuing the example above, say you paid off the credit cards and ditched that $200 a month in credit card payments. If you put that extra $200 a month toward a larger loan, you could potentially borrow another $10,000, for a total loan of $32,000, without exceeding the lender's maximum DTI of 40%.

How much can you borrow? Find out in 5 minutes (risk-free)

The simplest way to see how much loan you could get is to prequalify. Most personal loan providers offer risk-free prequalification. This means they ask you about your income, debt, and loan purpose and perform a soft credit check, which won't impact your credit score. 

In just a few minutes, you'll have an estimate of how much you could be approved to borrow and the terms you're likely to get. Ready to get started? Check your rate with no credit impact to see if an Achieve Personal Loan is the right fit.