Getting a personal loan with a modest income may seem like an impossible goal. However, a lower income may not be a barrier to loan approval if your income is consistent and sufficient to repay the loan and you meet the lender’s other requirements.
“There is no fixed minimum income to apply,” says Laura Sterling, vice president of marketing for Georgia’s Own Credit Union. “However, a lower income could equate to a higher rate and lower loan amount.”
[Read: Best Personal Loans.]
How to Research Lenders That Offer Low-Income Personal Loans
Lenders that offer personal loans include large banks with offices in several states and local credit unions, where borrowers may be able to establish in-person relationships with their loan officers. These institutions may offer personal loans as well an array of other banking products and services.
“A personal loan is a form of credit providing a one-time cash payment to the borrower. In return, the borrower pays back that amount plus interest in regular, monthly installments over the life of the loan,” Sterling says.
Many lenders do not disclose minimum income requirements. Even when they do, that information may not be helpful for borrowers because income is only one of several factors that lenders commonly use to evaluate loan applications.
You can check lenders’ websites to see if there is information about income requirements. The online information may include both general and specific guidelines. For example, LendingPoint lists a minimum annual income of $35,000 as one of its requirements, while Alliant Credit Union says lenders consider factors such as an applicant’s income, credit score and debt-to-income, or DTI, ratio.
Another option is to visit a lender’s branch in your community and ask to speak with a loan officer.
When choosing a lender, you can also search online reviews and check out the Consumer Financial Protection Bureau’s consumer complaint database to see how companies respond to consumers. This can help you determine whether the lenders you are considering are reputable.
[Read: Best Bad Credit Loans.]
How to Qualify for a Personal Loan
There are some boxes you’ll generally need to check to qualify for a personal loan. “To qualify for a personal loan, lenders typically require (borrowers) to have a steady source of income, a minimum credit score and reasonable DTI ratio,” says Michael Collins, a chartered financial analyst and an adjunct faculty member at the Curtis L. Gerrish School of Business at Endicott College in Beverly, Massachusetts.
Specific requirements may vary among lenders. Lenders consider factors including:
— Credit score. A low credit score, short credit history or history of late or missed payments may make lenders wary of approving your personal loan request. That’s because a rocky credit record could suggest you’ve had difficulty repaying debt. “A minimum credit score of 670 may help a borrower qualify,” Sterling says. “The higher the score, the more likely a borrower is to qualify.”
— DTI ratio. Your DTI ratio is a measure of how much you owe in monthly debt payments relative to how much you earn each month in gross income. The exact amount of monthly debt payments you can have and still qualify for a personal loan with a relatively low income will depend on the lender’s requirements. Sterling and Collins both says lenders may require applicants to have a DTI ratio of 36% or less to obtain a personal loan.
— Income. While you may qualify for a personal loan with little income, most lenders will expect you have at least some steady income that’s sufficient for loan repayment. The desired income level can vary based on the lender.
— Documentation. When you apply for a personal loan, you may need to provide two forms of government-issued ID — such as a driver’s license and passport — to show you are a U.S. citizen, plus proof of your home address. A utility bill or lease agreement may be acceptable to show residency. Other documents may also be required.
How to Apply for a Personal Loan with Low Income
You may be able to apply for a personal loan online or in person at a branch location.
Either way, the process will generally involve providing proof of your employment and income — even if it’s a modest amount. Lenders also require information about your monthly debt payments. These might include your rent or mortgage payment and the payments you owe each month for any student debt, car loan or credit cards.
Applying for a personal loan with a bank or credit union where you already have at least one open account may improve your chances of being approved and receiving a more attractive rate for your loan. A co-signer might strengthen your application as well, if the lender allows co-signers.
[Read: Best Low-Interest Personal Loans]
What Are Some Alternatives to a Personal Loan?
There are good reasons to consider a personal loan. Maybe you want to consolidate other debt, you prefer to borrow without having to pledge an asset you own as collateral or you simply need cash in a hurry, among other possible reasons.
Regardless of the reason you want to borrow funds, you should consider other options before you decide that a personal loan is a good fit for you. Those may include:
— A home equity loan or home equity line of credit.
— A 401(k) loan secured by your employer-based retirement account.
— A loan from a family member or friend.
If you’re having trouble qualifying for a personal loan, you may also be tempted by some of the easiest loans to get, such as payday loans and pawnshop loans. But make sure you explore other options and understand the risks and costs associated with those loans before you get one.
Once you’ve explored your options, it’s time to decide if a personal loan makes sense for you and your financial situation. If your answer is yes, you can start the application process.
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Can You Get a Personal Loan With Low Income? originally appeared on usnews.com
