Key Takeaways
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Secure a personal loan with competitive terms by exploring options such as requesting a lower loan amount, finding a cosigner, or working with online lenders.
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It is crucial that you have sufficient income to meet your monthly payments, as non-payment can seriously affect your credit score.
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If you can’t get a personal loan, alternatives include secured loans and credit cards.
If you have a low income and are faced with unexpected expenses, it may seem like a personal loan is completely out of the question. Most lenders require applicants to have a stable income. Some even require a minimum annual amount. However, some lenders do not take income into account. Others have a holistic approval and lending model.
Some lenders may charge a higher interest rate if you have a lower income. So make sure the total monthly payment doesn’t stretch your budget before signing up. When calculating your total monthly payment, consider the interest rate, principal amount of the loan, and applicable fees. If you fall behind on your payments, you will suffer credit damage and growing debt.
How to Get Personal Loans for Low Income Borrowers
Lenders want assurance that you will earn enough income to make timely loan payments as you add new debt. While not all lenders have a minimum income requirement, they all have different approval criteria. For example, you may be required to provide proof of income or prove that you have no recent defaults or bankruptcies.
Compare the approval requirements of multiple lenders before applying. Then compare them to your own finances. Only applicable to lenders where you meet the minimum requirements.
- Credit score: Perfect credit is not required to qualify for financing. However, good personal loan rates are typically reserved for borrowers with good or excellent credit. If you have a lower credit score, you can expect higher interest rates and fees. For example, those with scores below 690 are likely to receive a percentage between 17.80 percent and 32 percent. By comparison, the average interest rate on personal loans is currently above 12 percent.
- Income: Some lenders ask for proof of stable and verifiable income. They may ask you to show a recent pay stub, W-2, or tax return, along with your employer’s contact information. If you are not a W-2 employee but earn income from self-employment, side hustle, child support, alimony or government benefits, include these on your loan application.
- Debt-to-income ratio (DTI): Lenders want assurance that taking on new debt won’t overwhelm your budget. Your DTI is calculated by dividing the sum of your monthly debt payments by your total monthly gross income. Lenders love DTIs at or below 36 percent, although some lenders accept DTIs up to 50 percent.
- Proof of residence: The lender may request a copy of a mortgage statement, rental agreement or utility bill, which lists your name and address on the loan application.
If you don’t meet the eligibility criteria for most lenders and don’t need immediate financing, consider working with a credit counselor or moving forward with a debt management plan to help you pay off existing debt pay and improve your credit rating.
If you need quick financing, you can increase your chances of approval by asking a creditworthy friend or family member to co-sign the loan with you. However, co-signing leaves the co-signer on the hook for payments if you don’t make them. Make sure you can reasonably afford the payments before choosing this route.
Personal loan providers with low interest rates
These lenders offer personal loans with low interest rates to make taking out a personal loan more affordable:
| Lender | APR range | Loan amounts | Loan terms | Minimum credit score |
|---|---|---|---|---|
| Upstart | 7.80%-35.99% | $1,000 – $50,000 | 3 – 5 years | No requirement |
| Pen Fed | 7.99%-17.99% | $600 – $50,000 | Up to 5 years | 700 |
| Happy money | 11.72%-17.99% | $5,000 – $40,000 | 2 – 5 years | 640 |
| PNC bank | 8.49%-24.74% | $1,000 – $35,000 | 6 months-5 years | Not specified |
Upstart
Upstart offers fast approvals and financing in just one business day. What makes the lender even more attractive to potential borrowers is that there is no minimum credit score required. Instead, Upstart looks beyond your credit score by evaluating your employment and education history to determine if you’re qualified for a loan.
Pen Fed
You must join PenFed Credit Union to apply for a personal loan, and the length of your membership will be taken into account during the underwriting process. However, it can be a valuable step. There are no origination fees and you can apply together with a co-applicant. And if you have the credit to qualify, the starting interest rate is among the lowest among our best low-interest personal loans.
Happy money
Happy Money offers one loan: the Payoff loan. It is designed for consolidating high-interest credit card debt. While the minimum interest rate may not seem low, it is much lower than the average credit card interest rate, which is currently 20.75 percent. The lender also offers online money management tools and financial education resources to help you take control of your finances.
PNC Bank
PNC Bank is a brick-and-mortar financial institution that offers unsecured personal loans at minimal fees and competitive rates. The lender doesn’t share most eligibility requirements, but PNC Bank allows joint applications, according to a customer service representative. If you already have an account with PNC, you may qualify for a reduced interest rate. There are more than 2,600 branches nationwide if you want to receive personal support.
Alternatives to a personal loan if you have a low income
Whether you don’t qualify for a personal loan or would rather explore other sources of financing, consider the following options.
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If you have good or excellent credit, consider a credit card with an introductory interest-free period. If you pay off the full balance before the promotional period ends, you will not pay interest on the costs you incur. Otherwise, this form of financing could be expensive. If you spend more than you can afford to pay back before the offer ends, interest will start to accrue and you’ll end up paying only the minimum monthly payment for a while.
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To get a guaranteed loan, you must put up collateral. However, they are attractive to many borrowers because you can get approved with a lower credit score and minimal income. The disadvantage is that you can lose your equity if you no longer pay the loan.
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Some credit unions offer small-dollar emergency loans to their members. These loans are often referred to as payday loan alternatives. They are sometimes reserved for people with low incomes or credit problems who have difficulty getting a personal loan elsewhere.
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Pawnshop loans are available to low-income borrowers. You must hand in an item worth more than what you want to borrow to the pawn shop to get cash. They keep it until you have fully repaid the loan plus fees. But if you default on the payments, the pawn shop will sell your item to make up for the losses. Pawn shop fees often translate into APRs in the triple digits, so this is a last resort option.
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While they are easily accessible if you have a low income and imperfect credit, payday loans should only be used as a last resort for a few reasons. For starters, interest rates are often well into triple figures. Some go as high as 650 percent, much higher than even pawn shop lenders charge. And as the name suggests, the balance is typically due on your next payday. It’s dangerously easy to get into a cycle of mounting debt with payday loans.
The bottom line
Sometimes taking out a personal loan is necessary, but if you have a lower income, this can be a challenge. The upside is that some lenders offer flexible, affordable loan products with competitive rates for those on lower incomes. However, before you sign up, make sure you can afford the monthly payments. Explore well-regulated options like personal loans and credit cards before turning to riskier, higher-interest alternatives.
