What Documents Are Required for a Personal Loan?
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A personal loan can be a great way to pay for a home renovation project, fund a big expense, pay for a family vacation, or just cover unexpected costs that crop up. You can also use a personal loan to consolidate credit card debt and other outstanding balances, both to simplify repayment and save yourself money.
Applying for a personal loan can be a quick process, especially if you apply online, but there are some documents youโll probably need to provide as part of the process.
Hereโs a look at how it all works, which documents to be sure to have on hand, and what you can do to make it move as quickly as possible.
No matter what your reason for shopping for a personal loan, getting one will require following the process below.
Depending on the lender you choose, you could potentially borrow anywhere from $500 to $200,000 (sometimes more) with a personal loan. Before you can begin looking for a loan, you need to know what you plan to do with the money and how much youโd like to borrow.
If youโre consolidating debt, add up all current balances that you want to pay off. In some cases, you may need to ask for a payoff statement to get the most-up-to-date amount.
If youโre paying for a project, family vacation, or other big expense, you may want to include your projected cost plus a small overage in case of unexpected labor costs, travel fees, etc.
Immediately after taking out a personal loan, your interest will begin to accrue and youโll be expected to start making payments. Itโs important to factor these payments into your monthly budget to ensure that you will be able to cover the added expenses until the debt is repaid.
Your monthly payment will vary based on your total loan amount, the loan term you choose, and the interest rate youโre offered. Look at your monthly expenses and figure out how much you could spare for loan payments. Knowing this ahead of time will help you choose the right loan and repayment term.
Now that you have an idea of what you need, itโs time to start looking at and comparing lenders. Chances are that most lenders will offer the loan amounts and terms you want (or close to them), so what you really want to compare are the interest rates. As you do so, use a loan calculator to play around with what different loan rates and terms will mean for your monthly repayment amount on loans of different sizes.
Many lenders will allow you to check your rate with a soft credit pull, which wonโt affect your score and can take just seconds online. The rate youโre offered is based on how much you borrow, the repayment term you choose, and personal factors such as your credit score and income. A rate check or preapproved offer is subject to change once you submit a formal application, but can still give you a good idea of the rate(s) for which you qualify.
This rate, expressed as an APR (annual percentage rate), is your new loanโs overall cost. The lower the rate, the more affordable your personal loan will be.
The other key factor in how big your payment will be is the term of the loan. The longer you have to pay it back, the lower your monthly payment. However, a longer term means that youโll eventually pay more in interest to borrow the money, so get the shortest term you can afford.
Once youโve narrowed your options, itโs time to formally apply for your loan. You can choose to apply through one of the lenders from which you already got rates and a pre-approval, or another lender altogether. You can even opt to apply with multiple lenders at the same time and choose the one offering the best terms.
This application process usually involves a hard credit check (or pull), which will show up as an inquiry on your credit report. Using this information that the lender receives from the credit bureaus, it is able to make a specific loan offer with defined terms and rates. Once you accept this offer, the terms wonโt change.
You found the perfect loanโnow what? Itโs time to finalize the loan by providing the lender with any documentation required and signing your loan paperwork.
Your lender may request certain verification documents such as:
The lender will also send over certain documents for you to read and sign. These can include:
These documents can usually be uploaded and signed online, but having them available and ready in PDF form can speed up the entire personal loan process.
Your loan has been verified and signedโnow all thatโs left is to receive your money.
Some lenders can fund your loan as quickly as the same day. Others may take a few business days to send your funds electronically. You may also have the option to pick up a check at a local bank branch (if applicable) or have your lender send you a paper check in the mail.
Each lender has its own qualifications and personal loan requirements, which may also vary depending on how much you want to borrow and even where youโre located.
In general, personal loan eligibility hinges on factors such as your:
Even if you do qualify for a loan, these factors may impact the loan repayment terms youโre offered and the interest rate youโre given on the amount borrowed.
Whether you need money fast or just donโt want to spend all day dealing with loan documents, here are some tips for speeding up the loan-application process.
Youโll make the entire process move faster, start to finish, if you have the documents and information youโll need on-hand and available before you ever apply.
The documentation required will depend on the lender and your situation, but (as noted earlier) may include:
Know your loan-funding preferences and gather the information youโll need to execute them. Do you want to receive your loan funds directly into your bank account or would you prefer a check be mailed to your home? If offered, would you rather pick up a check from a local branch of your financial institution?
The information youโll need could include your bank name, routing number, account number, and bank mailing address. In the case of a wire transfer, youโll need your bankโs ABA routing number.
There are many reasons you might be denied a personal loan, especially during a time when financial institutions are tightening up their lending. You might be denied due to your income, because your DTI (debt-to-income ratio) is too high or your credit score is too lowโor because you asked to borrow too much for your financial circumstances.
If you are denied but still need to borrow funds, consider alternatives to a personal loan. These include:
A personal loan can be a great way to access the cash you need for any number of purposes, whether youโre facing an unplanned expense or trying to pay for a large purchase. Before approving you for a personal loan and disbursing your funds, though, the lender will ask for certain information and documentation. Having these documents on hand can speed up the approval process and get your personal loan funds to you even faster.
A personal loan is usually unsecured, meaning that it doesnโt require collateral. However, secured personal loans are available through some lenders, and may be a good option if youโre unable to get approved for an unsecured loan or canโt get the loan terms you want.
Examples of collateral that you can use to secure a personal loan include savings or investment accounts; tangible assets such as real estate, cars, art, and jewelryโor even your future earnings.
Lenders will, at the very least, ask about your household income. In some cases, this is sufficient and no proof is necessary. Other borrowers may be asked to provide proof of this income and/or employment status by uploading a recent pay stub, W-2, bank statement, etc.
You may be ineligible to take out a personal loan if you donโt meet the lenderโs requirements. These could include a credit score threshold, maximum debt-to-income ratio (DTI), or income limit. Lenders may also disqualify you based on your credit historyโbecause itโs just too limited or reveals such negatives as charge-offs, accounts in collection, or bankruptcy.
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