Creditworthiness
Your creditworthiness is a key factor in determining if you qualify for a personal loan. Elements that determine your creditworthiness include:
- Payment history on other loans or credit cards
- Credit utilization (how much of your available revolving credit you’re using)
- Average age of accounts
- Credit mix (a diverse mix of credit, such as credit cards and student loans, is generally preferable)
Lenders want to know that you can repay a loan and make your monthly payments on time. A history of well-managed debt can help demonstrate that you’re a responsible borrower. It can even affect your interest rate, if approved. A higher credit score may make it more likely that you’re offered a lower interest rate.
Debt-to-income ratio
Lenders may also look at your debt-to-income ratio (DTI) when you apply for a personal loan. Your DTI is the percentage of your gross monthly income that goes toward debt payments. Typical payments include:
- Credit card minimum payments
- Car loan payments
- Mortgage payments
- Student loan payments
You can calculate DTI by dividing your monthly debt payments by your pre-tax monthly income. Let’s say you make $5,000 a month (before taxes) and pay $1,200 per month toward debt. Your DTI would be .24 or 24%.
Lenders use DTI to evaluate your ability to comfortably afford new loan payments and decide whether you can take on more debt.
What DTI ratio do I need to get a personal loan?
In general, lenders prefer a DTI ratio of 36% or lower. The lower your DTI ratio, the better your approval odds.
Stable income
Lenders want to know if you have a stable cash flow and enough money to cover monthly payments. For this reason, they may have minimum income requirements you need to meet to qualify for a personal loan.
Age
Personal loans typically have a minimum age requirement. Often, you must be at least 18 years old to qualify for a personal loan. Make sure to confirm this requirement with your lender before applying.
Document requirements for personal loans
Lenders may request that you attach certain documents to your personal loan application to verify your information. These documents may include:
Proof of identity
Lenders need to confirm your identity and that you meet the age requirement. Acceptable documents can include:
- Social Security card
- Birth certificate
- Passport
- Driver’s license
- Military ID
- State ID
Proof of address
If your proof of identity document features your address, you can also use it in this step. Otherwise, proof of address can include:
- Utility bills
- Lease agreements
- Mortgage statements
Proof of income and employment status
The required documents for income and employment status may depend on your employment type (for instance, full-time employment or self-employment). You may need to show:
- Recent pay stubs
- W-2 forms
- Tax returns
- Bank statements
- 1099 forms
How to apply for a personal loan
Ready to apply for a personal loan? Follow these easy steps:
- Do your research: Before starting your application, research and compare individual lenders’ requirements to find the best fit for you and your current finances. Consider the loan terms, interest rates and fees. For example, some personal loans may come with late fees or origination fees, which are generally deducted from the loan amount. That means you may have to borrow a higher amount to meet your needs.
- Consider pre-qualification: As you’re shopping for lenders, you might also take advantage of pre-qualification. This lets you gauge your approval odds and understand your potential loan terms with certain lenders without affecting your credit score. Pre-qualification can help you narrow down your options, though keep in mind that pre-qualification is not a guarantee of approval or loan terms.
- Fill out your application: Once you choose a lender, it’s time to apply for your personal loan. You can usually complete the application online. Ensure you have all your documents before you start. Be aware that after you hit submit, the lender will do a hard credit check, which can have a small, temporary impact on your credit score.
- Receive your money: If you apply and are approved, you’ll typically receive your personal loan funds quickly. For example, with a Citi® Personal Loan, those with an existing Citibank account can receive their funds via direct deposit as soon as the same business day.
Tips to help improve your personal loan eligibility
There are a few things you can do to help improve your chances of being approved for a personal loan:
- Review your credit report for mistakes: Errors may lower your creditworthiness and hurt your ability to be approved. You can dispute errors by contacting the relevant credit bureau, as well as the company that provided the incorrect information.
- Improve your credit: The most important way to improve your credit is by maintaining an on-time payment history across your other accounts. Other tactics include paying off your revolving debt, lowering your DTI and limiting new credit applications.
- Increase your income: Increasing your earnings or seeking more stable employment may be helpful in qualifying for a personal loan. This may mean moving from freelance to full-time employment or using your skills to start a side business.
Citi offers flexible personal loans to qualified applicants. If you think you could benefit from a Citi Personal Loan, apply online today.
What if I’m denied a personal loan?
If you’re not approved for a personal loan, the lender is required to send you a notification about why your application was denied. This can help you understand any issues you may need to address, such as a low credit score or a high DTI ratio. You can also request a free copy of your credit report from each of the 3 major credit bureaus to understand a fuller picture of your creditworthiness.
Keep in mind that having multiple hard credit inquiries on your credit report, especially within a shorter timeframe, can have a large impact on your score. Try to only apply when you’re confident about your approval odds.
Alternatives to personal loans
If you’re unable to qualify for a personal loan or decide it isn’t the right option for your needs, there are other avenues you might explore:
Home equity line of credit (HELOC)
If you own a home, you may be able to tap into your home’s equity to access funds. A HELOC typically starts with a draw period, during which you can borrow up to a limit and make minimum monthly payments, typically lasting 5 to 10 years. After the draw period ends, you enter repayment, which typically lasts 20 years. During that time, you must repay what you owe, plus interest, and you can’t borrow additional funds.
Keep in mind that HELOCs use your home as collateral. If you can’t repay what you borrow, the lender may repossess the property.
Credit card
If you have enough available credit and can pay off the amount you plan to spend before incurring interest charges, a credit card may be a good solution. However, cards with lower credit limits may not be flexible enough for your needs.
Personal loan FAQs
What credit score do I need for a personal loan?
Creditworthiness requirements vary by lender. Some lenders may accept applicants with lower credit scores, while others may have higher credit thresholds.
Is it hard to get approved for a personal loan?
It depends on the lender. Different lenders have different qualifications, including credit score requirements, maximum DTI ratios and more. Pre-qualification can help you assess your approval odds with a given lender.
What is the minimum salary needed for a personal loan?
Income requirements can vary by lender and may depend on the loan amount you’re requesting. Income consistency and the ability to repay your loan are key factors as well.
Apply for a personal loan with confidence
Applying for a personal loan may seem overwhelming, but understanding the factors that go into approval can set you up for success. If you have questions, contact your lender to speak with a representative.
This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.
