What documentation is required for personal loans?

When you apply for a personal loan, lenders ask for several documents to verify your personal and financial information before approving your request. Some lenders have unique application and eligibility requirements, but most will ask for similar paperwork.

Knowing what documents you need and having them ready before you submit your application may increase your chances of approval so you get your money faster.

What do I need to apply for a personal loan?

After you start the initial application process, lenders will require documents to verify all the information you provide. This usually includes proof of your personal details to confirm your identity and financial information. Typically, most paperwork can be filed electronically through a portal on the lender’s website.

1. Application form

All lenders require you to fill out an application form to be approved for a loan. If you borrow from an online lender, the process is completely online. If you apply for a personal loan from your local bank or credit union, you may be able to complete the application in person with a bank representative.

The application will likely look slightly different from lender to lender, but will usually ask for information such as:

• Your full name.
• Contact details.
• Address history.
• Date of birth.
• Citizen service number.

You’ll need to choose a loan amount, answer questions about the purpose of your loan, and provide financial information about your monthly income, bills, and debt obligations.

2. Proof of identity

Lenders must be able to verify your identity to approve your loan. Two forms of identification are usually required, and acceptable documents may include:

• Birth certificate.
• Certificate of Citizenship.
• Drivers license.
• Military ID.
• Passport.
• Social security card.
• State-issued ID.

The lender must be able to read your identification, so make sure you take a clear photo with your smartphone or use a scanner to avoid delays.

3. Employer and income verification

Unsecured personal loans rely largely on your income to determine how much you qualify for. Because lenders don’t require you to put up collateral to back the loan, you’ll need to prove you have a steady stream of verifiable income to get approved.

If you are traditionally employed, you can verify your income with a number of documents, including:

• Pay slips.
• Tax returns.
• W-2s and 1099s.
• Bank statements.
• Contact details of the employer.

If you are self-employed, you may need one or more of the following documents:

• Bank statements.
• 1099s for the past two years.
• Tax returns from the past two years.

If you work for a regular employer, you should be able to consult your pay slips and tax forms via your payroll administration’s online database. You can also contact your personnel or payroll administration. For self-employed individuals, you may need to work with your CPA or other tax professional. They may be able to assist you in providing the required tax forms.

4. Proof of address

You will also need proof of your current address and how long you have lived there. You may not qualify if you have moved a lot or just moved to a new area. Although some lenders require specific documentation, you can usually use one of the following:

• Utility bill.
• Lease or rental agreement.
• Mortgage statement.
• Proof of insurance on your home or vehicle.
• Voter Registration Card.
• Property tax receipt.
• Bank or credit card statement.

If you need confirmation of your change of address, the US Postal Service offers resources to help you confirm a change of residential address. Although the quickest and easiest way to do this is online, you can also go to your local post office and fill out a form in person.

Other information that lenders use to approve your loan

Once you apply, lenders will consider several factors when approving your loan and determining what rate to offer you.

• Creditworthiness

  The higher your credit score, the better your APR and terms will be. Lenders offer higher loan amounts and longer repayment terms to consumers who have managed their credit well. You may have to accept a shorter term at a higher rate or a lower loan amount if you have bad credit.
  
  
  Most lenders offer a prequalification process that won’t negatively impact your credit score. However, to finalize your approval, the lender will take a hard look at your credit score, which will impact your creditworthiness.

• Purpose of the loan

  Personal loan providers have very few restrictions on how you use your loan funds. Money from a personal loan can be used to cover the cost of home improvements and upgrades, medical expenses, adoption costs, wedding expenses, travel, or any other major purchase.
  
  
  Some lenders offer special debt consolidation programs, while others offer big APR discounts if you opt for a personal loan secured by your car or home. If you are applying for a secured personal loan, you will also need to provide information about the asset you want to put up as collateral, such as a car or an art collection.

• Monthly expenses

  Lenders will review your credit report to calculate how much of your monthly income is used to pay recurring monthly expenses such as car, credit card, and mortgage or rent payments. They divide your total monthly debt, including your new personal loan payment, by your pre-tax income to calculate your debt-to-income ratio (DTI). If it’s too high, they may approve you for a lower loan amount or reject your application altogether.

What if you don’t get approved for your loan?

If you’re turned down for a personal loan, there are a few steps you can take to improve your chances on your next application.

Get a co-signer

A cosigner (usually a family member or friend) also assumes legal responsibility for your loan by signing up when you apply. Adding a cosigner who meets the eligibility requirements may increase your chances of approval or qualify you for a higher loan amount.

Keep in mind that your cosigner’s credit will be affected if you miss a payment or default on the loan.

Choose a secured personal loan

Secured personal loans are backed by collateral such as a boat, car, house or RV. You will need to provide paperwork showing proof of ownership and the lender will need to determine what the asset is worth to borrow on it.

By applying for a secured personal loan, you can reduce the lender’s risk and increase your chances of approval, as the lender can seize your assets if you are unable to repay your loan. You may even get a lower interest rate, allowing you to make a lower payment so you qualify for a higher loan amount.

Work on your credit score

If you don’t qualify for a personal loan right now and don’t need the money urgently, consider working on your credit score. Paying off your credit card balance is one of the best ways to improve your score quickly. It lowers your credit utilization ratio, which is a major factor in how high your credit score is.

Once your score improves, you increase your chances of getting approved.

Consider a credit card

A credit card is designed for small, everyday expenses, so it may not be the best choice if you need to cover large expenses. However, for common projects under $1,000, a credit card may be a better option. The applications require similar documents and information, and finding a credit card that meets your needs can be easier.

How to get a personal loan

Taking out a personal loan is relatively easy. However, you can quickly increase your chances of getting the amount you want by following a few simple steps.

1. Determine how much you need, including costs. It’s best to add an extra 10 percent to the amount you need to cover potential origination costs, especially if you need a specific dollar amount. For example, if you need $1,000 cash, add an additional $100 (10 percent) to the requested loan amount. If the lender’s costs are lower, you can always reduce the amount before you sign. It’s easier to borrow less after you’re approved than to borrow more.
2. Know the lender’s requirements. Minimum credit scores, loan amounts, APRs and repayment terms vary by lender. Take the time to review the lender’s website so you don’t waste time applying to a lender that doesn’t offer personal loan terms for your plans.
3. Shop around with different lenders. Make sure you pre-qualify with at least three different personal loan lenders. Visit your local bank or credit union and ask if it offers any discounts if you bank with them. Review all terms and conditions to ensure you understand your monthly payment and any fees.
4. Sign up and submit your paperwork. Once you’ve chosen a lender, complete the online application and upload all necessary documentation. The lender manages your credit and may adjust your prequalification requirements if your credit score or income is lower than what you stated on your application.
5. Review and sign your paperwork and receive your money. Once you are fully approved, the lender will send you final documents to sign with all repayment information. Normally, you must provide the lender with your bank details in order to deposit the borrowed money directly into your account. Most personal loan lenders can fund your loan within one business day of application.

it comes down to

Gathering the information and documents you need before applying for a personal loan can save you time and avoid potential financing delays. Make sure all your paperwork is legible and submit documents as quickly as possible to speed up the process. Keep in mind that not all lenders have the same requirements, so make sure you understand the general documentation criteria before applying. By being prepared, you will increase your chances of approval and receive your money faster.