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. For lenders, higher credit scores mean you’re more likely to repay the loan as agreed. That's why the most critical factor in your credit score is your repayment history.

Lenders also want to see your credit utilization, or how much of your available credit you're currently using. High utilization could suggest that 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 percentage of your income that goes toward housing and debt payments.

Lenders want to make sure you can afford to repay your loan. So, they'll consider your income and debt, including the payment for the new loan.

How does my debt impact how much I can borrow?

Along with your income, debt payments are part of your debt-to-income (DTI) ratio.

What's a good DTI ratio for personal loans? A DTI below 36% is ideal to most lenders. Borrowers with good or better credit can potentially find personal loan providers that will accept a DTI up to 50%. Over 50%, you'll find it harder to borrow.

To calculate your DTI, add up your monthly debt payments plus your housing cost (rent or mortgage payment), and divide that by your gross (before-tax) monthly income.

Suppose 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 calculates your DTI, including the expected payment for the new loan. If the loan would push your DTI too high, you could be denied the loan or offered a lower amount.

One common exception: With a debt consolidation loan, lenders often exclude the debts you're consolidating from your DTI calculation. They may require you to authorize direct payment to those creditors, though, so they can be confident the old debts are actually cleared.

Borrowing is a numbers game

Don't be discouraged if your credit score or DTI isn’t 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:

When 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. A co-borrower or co-signer with strong credit and/or income could give lenders extra confidence. Anything that improves the profile for your loan application 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 loan amounts, and your maximum loan depends on your credit, income, and debt. Stronger credit and lower existing debt usually mean a higher approval amount and better rates.

How your DTI impacts your loan amount

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 accepts 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 monthly 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, and possibly your loan purpose, 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? A higher credit score could help. You can also focus on improving your DTI by increasing your income or paying down existing debt.

From the example above, what if you paid off the credit cards and ditched that $200 a month in credit card payments? Without the extra $200 monthly expense, 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 you might borrow is to prequalify with a personal loan provider that uses a risk-free, soft credit pull for prequalification. A soft inquiry doesn’t show up on your credit reports or harm your credit scores.

Achieve Personal Loans offers a risk-free prequalification that evaluates your income, debt, and loan purpose. Prequalification isn't a binding offer, since final terms depend on full underwriting and may differ from the estimate. In just a few minutes, you'll have an estimate of how much you might be able to borrow and the terms you're likely to get.

Ready to get started? Check your rate with no credit impact to see if a loan through Achieve Personal Loans is the right fit.