- The terms you receive are dependent on your credit, income, and current debt load.
- Lenders conduct a credit review along with verifying employment and income before approving a personal loan.
- Higher credit scoresoften qualify you for better interest rates.
- In most cases, collateral is not required.
Regardless of which lender you select, you can expect a review of your finances as part of the approval process.The assessment for debt consolidation loans begins with looking at your credit and verifications for employment and income.
Understanding the debt consolidation loan requirements allows you to take proactive steps before applying, which could expedite the approval process and increase your chances of getting a loan.
Below are typical lender requirements:
Credit: Your credit score directly impacts approval and the terms offered by the lender.In general, the higher your credit,the lower the interest and fees.It could also affect the loan’s duration.
Most lenders want a credit score in the 600s.Interest rates typically range from 5% to 30%, with fees varying from none to 10% of the borrowed amount.The repayment term could be from one to seven years.
Before applying, review your credit report and correct any errors.Catching up on late payments or reducing debt balances could raise your score quickly.
While credit is a significant consideration for both approval and terms, some lenders will work with you even if you have fair credit.However, the terms are not as attractive,and you will save less money in interest.
Collateral: Personal loans generally do not require an asset to secure the loan.
If you are struggling to get approved, adding collateral could help. Collateralized loans often put less weight on credit because the lender can seize the asset if you fail to make on-time payments.The loans often qualify for lower interest rates, but closing costs tend to be higher because the company must vet your personal finances and the asset.
Earnings: When verifying income, lenders use gross income, or earnings before taxes. Paystubs or tax returns are usually accepted forms of verification.Although, in some cases, you may be able to present bank statements.
Current debt: Your debt-to-income ratio is as important as your credit.Lenders use the minimum payment due on all debts listed on your credit file, plus housing costs if you do not have an active mortgage.
To qualify for a new loan, you must earn enough to pay the minimum amount on current obligations plus the new loan payment, even though you are paying off debt with the proceeds.
Final Thoughts
Banks want to approve loans for applicants who don’t need the money, making it more challenging when finances are tight.Even though you are paying off accounts with the loan, creditors include existing debt payments when determining the amount you qualify to borrow.
Not all lenders use the same guidelines, making it possible to get a loan even if one lender declined your application.However, if you receive a decline, it might help to review your credit, income, and current debt levels before submitting additional applications.There may be things you can do to improve your approval chances.
Adding a co-signer or securing the debt are other strategies to qualify for a loan if you cannot get approved based on your credit and income.
