Americans held $117 billion in personal loans at the end of 2017, according to TransUnion. But this high balance doesn’t mean lenders give personal loans to just anyone.
Before lending an unsecured personal loan — or one that doesn’t require collateral — companies need reassurance about your ability to pay it back in full. To determine this, they look at factors such as your credit score and debt-to-income ratio.
If you’re interested in borrowing an personal loan, here are seven steps to take to ensure your application will be approved.
1. Check your credit score
Your credit score is a major factor when qualifying for an unsecured personal loan. Although lenders typically don’t disclose what score they look for, most prefer good or excellent credit.
Before applying for an unsecured personal loan, make sure you know what your credit score is. You can check it out for free with services such as Credit Karma.
Some credit card companies also offer your FICO score for free. By knowing your score, you’ll have a better idea of your chances of qualifying for a personal loan.
2. Order a copy of your credit report
Although your credit score represents your creditworthiness, it doesn’t show you the full picture. For a deeper dive into your financial past, order a free copy of your credit report from AnnualCreditReport.com.
You can get a free report once a year from each of the three major credit bureaus: Equifax, Experian, and TransUnion. It will show any outstanding debt, along with your history of repayment and other factors that affect your credit score.
Take a close look at your credit report so you can see areas where you’re on track, as well as areas where you can take steps to improve. Also, be on the lookout for any reporting mistakes.
“Get a copy of your credit report and review it for any errors,” suggested David Bakke, a personal finance expert at Money Crashers. “Fixing those will improve your score as well.”
If you find errors, you can submit a written dispute to the credit reporting company.
3. Pay your bills on time
If your credit score is low, you could try to improve it by paying your bills on time.
On-time payments will help increase your credit score and, as a result, boost your chances of getting an unsecured personal loan.
“One of the main qualifiers for unsecured personal loans is your credit score, so folks should get to work on beefing that up before applying,” said Bakke.
Even if your score is high enough to qualify for a personal loan, increasing it also could snag you lower interest rates.
“If you qualify for [a personal loan], but your credit score is low, you’ll pay more in interest — another good reason to improve it,” Bakke added.
4. Pay down your debt
Your debt-to-income ratio is another major factor affecting your credit score. If you have a high ratio, paying down your debt could help boost your score.
Come up with a plan to conquer your debt, whether by making extra payments or increasing your income by taking on a side hustle.
You also might open a new credit card to reduce your ratio, but be careful to not spend more than what you can afford just because you have access to more credit.
After all, this will increase your debt-to-income ratio again, hurt your credit score, and make it difficult to get an unsecured personal loan.
Also, keep in mind that opening too many new lines of credit in a short time could hurt your score.
5. Show you have a stable income
“A lender is going to look at other factors such as income and employment history,” said Ryan Skidmore of Lift Credit. “They want to ensure that you are getting enough money to make on-time payments.”
While lenders look at your credit score to understand your financial past, they typically also consider your income as a sign of your financial future.
Proof of income, along with a stable employment history, shows the lender that you’ll be able to manage repayment over the life of your loan. Unstable employment, on the other hand, could hurt your chances of qualifying.
According to Skidmore, a lender will ask for your salary data and might even call your employer to verify your information.
If you don’t have much money coming in, take steps to improve your employment situation before applying for an unsecured personal loan.
6. Submit a joint application with a creditworthy cosigner
Besides improving your credit score and boosting your income, another step you can take to get an unsecured personal loan is applying with a creditworthy cosigner.
If your credentials are weak, your cosigner’s credit score and income could make up for them.
“Many lenders are more than willing to give loans to someone with bad credit if someone with a good credit score is willing to cosign the loan,” said Skidmore. “A cosigner commits to being responsible to pay the loan if the borrower is unable to do so.”
Skidmore suggests asking a relative or close friend to act as your cosigner. Of course, you and your cosigner must be comfortable sharing debt. Both of you will be equally responsible for repaying the loan in case one person can’t pay.
7. Find the right lender
Although lenders look at similar factors when considering you for a loan — credit score, income, history of debt repayment — each company sets its own underwriting requirements.
You might have a better chance of approval if you have a relationship with the lender, whether it’s a bank or local credit union.
“Start with your current bank or credit union, as they might offer you a better rate than a lender with whom you have no relationship,” said Bakke. “But you should still shop your loan to at least three lenders overall to ensure you’re getting the best rate.”
Peer-to-peer lenders, such as Prosper and LendingClub, are other options. Make sure you’re going with a reputable lender offering low rates.
Even if you have no trouble getting approved, it’s smart to shop around and compare personal loan offers. That way, you can find the best offer for your financial situation, as well as a personal loan with the lowest rate.
Interested in a personal loan?
Here are the top personal loan lenders of 2018!| Lender | APR Range | Loan Amount | |
|---|---|---|---|
1 Includes AutoPay discount. Important Disclosures for SoFi. SoFi Disclosures
2 Includes AutoPay discount. Important Disclosures for Payoff. Payoff Disclosures
3 Important Disclosures for FreedomPlus. FreedomPlus Disclosures
4 Important Disclosures for Citizens Bank. Citizens Bank Disclosures
5 Important Disclosures for LendingPoint. LendingPoint Disclosures
6 Important Disclosures for LendingClub. LendingClub DisclosuresAll loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer. 7 Important Disclosures for Earnest. Earnest Disclosures
8 Important Disclosures for Avant. Avant Disclosures* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC. ** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33 * Important Disclosures for Upgrade Bank. Upgrade Bank Disclosures* Your loan terms are not guaranteed and are subject to our verification and review process. You may be asked to provide additional documents to enable us to verify your income and your identity. This rate includes an Autopay APR reduction of 0.5%. By enrolling in Autopay your payments will be automatically deducted from you bank account. Selecting Autopay is optional. Annual Percentage Rate is inclusive of a loan origination fee, which is deducted from the loan proceeds. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. All loans made by WebBank, member FDIC. Please refer to Upgrade’s Terms of Use and Borrower Agreement for all terms, conditions and requirements. ** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days. |
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 | 7.73% – 29.99% | $1,000 - $50,000 | Visit Upstart |
 | 6.26% – 14.87%1 | $5,000 - $100,000 | Visit SoFi |
 | 6.99% – 35.97%* | $1,000 - $50,000 | Visit Upgrade |
 | 8.00% – 25.00%2 | $5,000 - $35,000 | Visit Payoff |
 | 4.99% – 29.99%3 | $10,000 - $35,000 | Visit FreedomPlus |
 | 5.99% – 18.99%4 | $5,000 - $50,000 | Visit Citizens |
 | 15.49% – 34.49%5 | $2,000 - $25,000 | Visit LendingPoint |
 | 6.16% – 35.89%6 | $1,000 - $40,000 | Visit LendingClub |
 | 6.99% – 18.24%7 | $5,000 - $75,000 | Visit Earnest |
 | 9.95% – 35.99%8 | $2,000 - $35,000 | Visit Avant |