Are you a candidate to borrow money? Well, getting a personal loan is often seen as a faster solution for those who need to overcome a financial emergency. It is also often used to consolidate high-interest debts. However, not all people are eligible to get this lump-sum installment loan that can range from $1,000 – $40,000. Some requirements such as your income and payment history are key factors that lenders will consider when trying to decide whether you are qualified for the loan or not. Learning how to make yourself qualified for the personal loan on the following page.
What to Prepare
If you are interested in this form of debt, you need to get familiar with these basic personal loan eligibility factors.
- Credit Score
Among all the requirements that you need to meet, a credit score, is perhaps, the most important one. Most of the time, the credit score becomes an indication seen by the lenders of how creditworthy is the candidate of personal loan. If your credit score is rate, it might indicate that you are a risky borrower. You need to keep in mind that lenders protect themselves from risky borrowers by tacking on interest with higher rates. The lenders also do it while keeping the most competitive terms and rates for candidates with excellent credit.
To be considered eligible for the personal loan, you need to make sure that your credit is not less than 640. You will not get a reasonable personal loan if your credit score is lower than the required standard. Candidates with a credit score of 640 or higher are often considered qualified for APRs as low as 2.49%.
The next thing you have to consider when applying for a personal loan is your income. Lenders will need to ensure that you have a steady income before approving your application. Aside from the income, the lenders also need to find out how much you want to borrow from them. They also want to know how long you want to borrow the money for.
Bear in mind that a shorter personal loan term means that you have to pay for higher monthly payments. However, this shorter term is often considered a cheaper option in the long run. However, no matter which repayment period you choose, there is one thing that all lenders care about the most. They will question if your income can cover the monthly payment after they check all the existing debt payments that you have. This is where you need DTI (debt-to-income) ratio.
DTI will provide the lenders’ information they need about how much your income is used to pay the existing debts. You can also find out your DTI simply by adding up all the minimum monthly debts that you have to pay. Then, you need to divide the total payment by your gross income. You will be seen as an eligible candidate for the personal loan if your DTI is 35% or lower.
- Payment History
Your payment history usually has something to do with your overall credit score. It even plays a critical role when lenders try to determine your score. 35% of your FICO Score is even made up by your history payment. Keep in mind that a single late payment that you did in the past will remain in your credit report for up to 7 years. As for lenders, they need to be sure that you make good on your debt payments. In this way, a good track record in your history payment will give you a bigger chance to get your loan approved.
3 Steps to Make Yourself Eligible for a Personal Loan
If you are not sure whether you are eligible for a personal loan, you can do these 3 steps.
- Review Your Credit Score
Since your credit score is key, you need to review it carefully before applying for a personal loan. You can even do it easily through some free apps. When reviewing the credit score, you need to check some important things. These include payment history, amounts of owed, credit mix, new credit, and length of credit history. If you find that your credit score is lower than the average standard, you can pay your debt by using debt avalanche methods or debt snowball.
- Get Prequalified
For the next step, make sure that you find a well-reputed lender that meets your needs. You can even find some good personal loan tools on the internet that will prequalify you without hard checking on your credit report.
- Get Your Paperwork in Order
The next step you can do after you are prequalified is compare quotes. This is aimed to help you get the best lender. Make sure that you read the fine print so there won’t be any surprises await for you in the end. Once you feel okay with all the requirements needed, you can prepare the supporting documentation. These usually include income, your residence, and income. View more: withuloans.com