If you’re considering applying for a personal loan, you may be concerned about whether your income is sufficient. While there is no set minimum income requirement for a personal loan, most lenders want to see that you have enough income to repay the loan.
Some lenders look for a specific monthly or annual income amount, while others don’t disclose their requirements to applicants.
Understanding how income affects your chances of getting approved and how much you can borrow can help you find the right lender for your needs.
What is the minimum income requirement for a personal loan?
The minimum income requirement for a personal loan varies by lender. For example, Discover requires a minimum income of $25,000 per year to qualify for a personal loan. Upstart only requires $12,000 per year.
Other lenders do not disclose a specific minimum income. However, even if they do not disclose their income requirements, most lenders will still evaluate your income to make sure you can afford to make your monthly payments.
They use income to determine whether you can afford to pay your personal loan payments, in addition to regular living expenses and other debts.
Your income can affect the amount and terms of your loan.
- A higher income can open the door to larger loan amounts.
- Low income can lead to low borrowing limits.
Having a stable, regular income can help you get better interest rates and a variety of repayment terms.
What counts as income for a personal loan?
Lenders consider a variety of sources of income when applying for a personal loan. This income can include:
- Regular salary, bonuses, or commissions from an employer
- Hourly and overtime wages
- Self-employment income
- Income from investments or rental properties
- Social Security, retirement, disability, pension, or trust income
- Alimony or child support
You will need to provide proof of income. This can include pay stubs, tax returns, or W-2 forms. Depending on the type of income, some lenders may require proof of regular income for at least one year. For example, Upstart requires this for self-employment and rental income, which can be verified by submitting a tax return.
What doesn’t count as income for a personal loan?
Check with your lender for specifics. However, the following types of income may not count when you apply for a personal loan.
- Spouse’s income (if you’re not applying jointly)
- Signing Bonuses or Relocation Packages from your employer
- Income earned in foreign currency
- Business income not reported on your personal tax return
In general, lenders will not consider one-time or irregular income. Instead, they are looking for a steady, regular income that you can use to repay the loan according to the agreed-upon terms.
What to do if you don’t qualify because your income is low
Even if your income doesn’t meet the lender’s requirements, there are still options for getting a personal loan.
- Shop around: Each lender has its own set of terms and conditions, so it’s important to compare loan offers. Even if one lender rejects your application, you may still be approved by another.
- Request a smaller loan amount: Your income may be too low for a large loan, but you may still qualify for a smaller loan amount with a lower monthly payment.
- Wait to borrow: If you’re self-employed or just starting a new job, lenders will want to see you have several months of steady income before approving your application.
- Take on a side hustle: Find extra income, Consider ways to increase your income, such as getting a promotion or a new job. Having a higher income will make it easier to get approved for a loan and borrow a larger amount.
- Apply with a co-borrower or co-signer: Applying with a co-borrower or co-signer can help you get approved. This is because the lender will consider both people’s income. This can also help you get a better interest rate.
- Consider a secured personal loan: Some lenders offer personal loans that can be secured by collateral, such as a savings account or a vehicle. Secured loans are less risky for lenders, so they have easier income and credit requirements. However, be aware that the lender can seize the collateral if you fail to repay the loan.
Other Requirements for Personal Loans
While your income plays a major role, it’s not the only criterion for a personal loan. Here are two other important criteria:
Debt-to-Income Ratio (DTI)
In addition to your income, lenders also consider your debt-to-income ratio (DTI) when assessing your ability to repay a loan. DTI compares your monthly debt obligations to your total income (income before taxes).
- For example, let’s say your monthly income is $5,000 and you pay $2,000 in current debt (home loan, student loan, credit card). Dividing your debt payments by your income would give you a DTI of 40%.
Lenders have different requirements, but they prefer a DTI of less than 35%. If your DTI is high, it could be due to increased income, You can reduce your DTI by paying off your debts or both.
Credit History and Credit Score
Your credit also plays an important role in your loan application. Lenders want to see how you’ve managed your credit in the past—whether you’ve made timely payments on loans and credit cards.
- They also look at your credit score. It reflects your credit management history. A good or excellent credit score can help you get approved and get better interest rates.
- A fair or poor credit score can make it harder to get affordable loans.
If you need to repair your credit, consider applying with a co-signer or choosing a secured loan. However, both options come with risks—your co-signer’s credit could be affected if you default, and you could lose your collateral if you can’t repay the secured loan.
Also Read: Personal Loan Requirements: 5 Ways to Boost Your Approval
Find the right personal loan for your income
Lenders want to see that you have a steady income and can afford to make your personal loan payments. While some lenders have specific income requirements, others do not disclose a minimum amount.
When applying, be sure to list all sources of income on your application, including alimony, child support, or government benefits. Gather proof of income in advance to help the application process go smoothly.
If you are concerned about low income, consider ways to find more income or pay down debt and lower your DTI (debt-to-income ratio). It is also a good idea to compare several lenders to find the lender that best suits your situation.
Many lenders allow you to prequalify online. This allows you to check interest rates and approval chances without affecting your credit score.