The requirements for availing a personal loan differ from one lender to another, but there are certain common considerations, like income and credit score. Before applying for a personal loan, you must become familiar with the requirements of a personal loan.
This knowledge helps you streamline the application process and improve your chances of getting qualified. In this article, we will tell you the five basic requirements you have to meet to become qualified for a personal loan.
Credit score and history
The applicant’s credit score is important in evaluating the loan application. The credit score lies between 300 to 850 and depends on factors such as the amount of outstanding debt, payment history and credit history length.
Many lenders need applicants to have a minimum score of 600 credits to become eligible for a personal loan. Use the personal loan EMI calculator to get an idea of EMI before applying.
Lenders impose income requirements on applicants to determine whether they will be able to repay the loan amount in time. The minimum income requirements differ from one lender to other.
Do not feel surprised if your lender does not tell you the minimum income requirements. Many lenders do not disclose this. The income evidence may consist of the monthly bank statements, tax returns, signed letters from employees, pay stubs, etc.
Debt to income ratio
DTI (Debt to income ratio) is in the form of a percentage. It represents the portion of a borrower from their gross monthly income that goes into the monthly debt. Lenders use DTI to estimate the borrower’s ability to make payments on current and new debt.
A DTI of less than 36% is considered good, but some lenders only approve the loan applications of applicants with a DTI ratio of up to 50%.
Many lenders need the borrowers to pay an origination fee for personal loans to cover the processing costs, running credit check costs and closing.
These fees usually lie from 1 to 8% of the total loan amount, based on factors like loan amount and credit score. Some lenders collect the origination fees at the time of closing, whereas others take it as part of the loan amount or subtract it from the total loan amount.
A lender decides whether they approve or reject your loan application. Based on the above requirements, they take their decision. If you are applying for a personal loan, you must first meet all the above requirements to reduce the chances of rejection.