Content of the material
- Personal loan details and benefits
- Determine the Type of Bank Loan You Need
- 3. Debt-to-income Ratio
- Why it matters
- Factors that will affect your interest rate
- What your credit score means
- Wells Fargo credit score standards
- Best for lower credit scores: OneMain Financial
- How to Qualify for a Personal Loan
- Decide How Much to Borrow
- 3. Know that loans can actually boost credit scores
- Where Can You Find a Personal Loan?
- How long does it take to get a loan?
- 2. Do I want to pay my creditors directly or have money sent to my bank account?
- Get cash back on every purchase
- Auto Loans
- 6. Does the personal loan have fees?
- Tips for speeding up the process
- Best for co-applicants: PNC Bank
- 7. Try to get preapproved
- Question 1
- How do you want to use your loan?
Personal loan details and benefits
If you have a FICO credit score of 660 or above — or higher if you aren’t a current U.S. Bank customer — a personal loan could be right for you. All loans are subject to credit approval.1
Determine the Type of Bank Loan You Need
Next, figure out what type of bank loan you need. The type of loan you get will depend on what you plan to do with the money. Some common loan types include:
- Auto loans for buying a vehicle
- Home loans (mortgage loans), including second mortgages for buying a home or borrowing against the equity in your home
- Personal loans, which can be used for almost any purpose
- Business loans for starting or expanding your business
- Student loans for educational purposes
- Fast loans, which can provide quick cash for emergencies
Some lenders may let you take out a certain type of loan that does not match your specific loan need. For example, you can generally take out a personal loan to pay for health, home repair, or other expenses. However, other loan types must be used for a specific purpose. For example, you generally have to use a mortgage loan to buy a home. In addition, you may not be eligible for all types of loans. To get a student loan, for example, you usually have to provide proof of enrollment in a degree program.
Tip Credit scoring algorithms are often customized for certain lenders and for certain loan types, so it benefits you to select a loan type that matches your need for the money.
3. Debt-to-income Ratio
Debt-to-income ratio (DTI) is expressed as a percentage and represents the portion of a borrower’s gross monthly income that goes toward her monthly debt service. Lenders use DTI to predict a prospective borrower’s ability to make payments on new and current debt. For that reason, a DTI less than 36% is ideal, though some lenders will approve a highly qualified applicant with a ratio up to 50%.
Why it matters
Capital matters because the more of it you have, the more financially secure you are ― and the more confident the lender may be about extending you credit.
Factors that will affect your interest rate
Personal loan qualification requirements vary based on the lender, but there are a few criteria that many lenders look at to determine your interest rate offer.
- Your credit score: Good credit can make it easier to qualify for a personal loan at a lower interest rate. Lenders will review your score and your credit history for adverse marks, like late payments or delinquent and defaulted accounts.
- Debt-to-income (DTI) ratio: Your DTI ratio is the amount of your monthly debt divided by your monthly gross income. Generally, a low DTI ratio is a signal to lenders that you can manage monthly payments on a new personal loan.
- Loan term: Generally, loans with shorter repayment terms offer lower interest rates. A longer repayment term typically means a higher interest rate.
- Co-signer: If you don’t meet the lender’s qualification requirements, having a trusted family member or friend in good financial health be your co-signer can increase your chances of approval — potentially at a better interest rate.
If you have a low credit score and a high DTI ratio and don’t have a willing co-signer with good credit and stable income, you won’t be eligible for the lowest personal loan rates. However, a strong credit score and a low DTI ratio will attract the most competitive rates.
What your credit score means
Your credit score reflects how well you’ve managed your credit. The 3-digit score, sometimes referred to as a FICO® Score, typically ranges from 300-850. Each of the 3 credit reporting agencies use different scoring systems, so the score you receive from each agency may differ. To understand how scores may vary, see how to understand credit scores.
Wells Fargo credit score standards
You generally qualify for the best rates, depending on debt-to-income (DTI) ratio and collateral value.
You typically qualify for credit, depending on DTI and collateral value, but may not get the best rates.
You may have more difficulty obtaining credit, and will likely pay higher rates for it.
620 & below, Poor
You may have difficulty obtaining unsecured credit.
No credit score
You may not have built up enough credit to calculate a score, or your credit has been inactive for some time.
Best for lower credit scores: OneMain Financial
Why OneMain Financial stands out: If you don’t have a great credit history, you may want to consider a personal loan from OneMain Financial. The lender says it looks at a number of factors when considering someone for a loan, including annual income, expenses and the purpose of the loan.
Here’s some more info about OneMain Financial.
- Quick loan application and funding process — OneMain says its application can take as little as 10 minutes, and you may receive the money as soon as the same business day if you’re approved by a certain time. But keep in mind that depending on your bank, there may be a wait before you can access your cash.
- Rewards program — OneMain offers a rewards program for things like on-time loan payments. You can use these rewards at retailers and restaurants.
- Higher interest rates — OneMain may approve people with lower credit scores, but it may charge a higher interest rate as a result. The company’s starting rates are higher than the other lenders on our list.
Read our OneMainFinancial personal loan review to learn more.
How to Qualify for a Personal Loan
There is no one formula to qualifying for a personal loan—every applicant’s financial situation is different and unique. However, there are rules of thumb and recommendations that can help you improve your chances of qualifying for a personal loan.
Most personal loan lenders review your credit score, credit history, income and DTI ratio to determine your eligibility. While the minimum requirements for each of these factors vary for each lender, our recommendations include:
- Minimum credit score of 670. Maintaining a credit score of at least 670 will improve your chances of qualification. However, if you want to receive the most favorable terms, we recommend a minimum score of 720.
- Consistent and steady monthly income. Minimum income requirements may vary drastically between lenders, with some having no requirements. However, it’s crucial to have consistent and steady income at the minimum to demonstrate you can afford your monthly payments.
- DTI ratio less than 36%. While some lenders will approve a highly qualified applicant with a ratio up to 50%, it’s best to aim for a DTI that’s less than 36% to improve your chances of qualifying.
Because each lender has its own minimum requirements, it’s in your best interest to prequalify when possible and confirm with the lender what benchmarks you need to meet. This will ensure you only apply for loans that fit your specific financial situation.
Decide How Much to Borrow
Remember that when you borrow money, you don’t just pay back the original loan. Except for that 0% card, paid off on time, you also pay interest or “rent” on the money you borrow. There’s no reason to pay interest on the money you don’t need, so only borrow what is necessary. On the other hand, if you borrow less than you need, you may be forced to turn to more expensive loan sources at the last minute.
Finally, make sure you can afford the payments on the amount you do borrow. There’s nothing worse than overextending yourself financially if the best thing would have been to wait a while until your finances improve.
3. Know that loans can actually boost credit scores
If you are looking to take out a loan to consolidate credit card debt, or pay debt down faster, it can help in more ways than you may realize. Making payments in a reliable, timely manner will have a positive impact on your credit score as the lender reports these payments to the three major credit bureaus.
Paying down debt can also help improve your credit utilization ratio, which is the percentage of available credit you are using. Experts advise keeping this ratio at 30% or below.
Taking out a personal loan can actually help boost your credit score because your credit mix — which refers to the types of different credit accounts you have — determines 10% of your overall credit score.
Where Can You Find a Personal Loan?
You can find a personal loan in the following places:
- Your bank or credit union
- A peer to peer lending site
- An online loan provider
- A referral from a friend or family member
- A private loan from an investor
How long does it take to get a loan?
The time it takes to get a loan will largely depend on the type of loan you're getting, how much you need, your financial situation, and the lender you use. The underwriting process for an auto loan or personal loan can be as quick as a day or two, but the process for a mortgage can take a month or more. Getting pre-approved before you actually make your purchase can help speed up the process.
2. Do I want to pay my creditors directly or have money sent to my bank account?
When you take out a personal loan, the cash is usually delivered directly to your checking account. But if you're using a loan for debt consolidation, a few lenders offer the option to send the funds directly to your other creditors and skip your bank account altogether.
If you prefer a hands-on approach or are using the money for something other than paying off existing debt, have the funds wired to your checking account.
A Marcus by Goldman Sachs Personal Loan may be a good choice if you're looking for a no-fee personal loan to finance debt consolidation. Marcus allows you to send money to up to 10 creditors, and then deposits any additional money you borrow directly into your linked bank account.
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6. Does the personal loan have fees?
Personal loan lenders may charge a sign-up, or origination, fee, but most don't charge any fees other than interest.
An origination fee is a one-time upfront charge that your lender subtracts from your loan to pay for administration and processing costs. It's usually between 1% and 5%, but sometimes it's charged as a flat-rate fee. For example, if you took out a loan for $10,000 and there was a 5% origination fee, you would only receive $9,500 and $500 would go back to your lender. It's best to avoid origination fees if possible.See our top picks for personal loans:
Select's list of the best 5 personal loans
Tips for speeding up the process
If you’re looking for a personal loan, you likely want to get your hands on the money as soon as you can. These tips can help you avoid delays when applying for a personal loan.
- Check your credit report before applying. Know where your credit stands before shopping around for personal loans. Spotting and correcting errors immediately is a simple way to avoid issues later on when you’re applying for a loan.
- Pay off debt. If you have debt and you don’t need the loan funds urgently, paying some debt off can raise your credit score and lower your DTI ratio, which can increase your chances of approval.
- Talk to your existing financial institution. Banks and credit unions might be more willing to consider a personal loan application from a customer with whom it’s had a positive, long-standing relationship.
- Consider online lenders. Many online lenders offer next-day loan decisions, and funds may be deposited into your bank account within a few days after applying, if you are approved.
- Pick loan funds up in person. If your lender has a brick-and-mortar location, ask if there is an option to pick funds up at the branch so you can get the money faster.
Best for co-applicants: PNC Bank
Why PNC Bank stands out: If you’re worried about qualifying for a personal loan on your own, PNC Bank may be a good option for you because it allows co-applicants. If you apply for a personal loan with a co-applicant, you’ll have to include the person’s address and annual income.
Here’s some more info about personal loans from PNC Bank.
- Rate discount available — If you have a PNC checking account and make automatic loan payments from it, you’ll get a 0.25% discount on your interest rate. PNC’s rates are competitive if you have strong credit. Any way to lower interest rates is a nice bonus.
- Small loans available — PNC personal loans start at just $1,000, which may be helpful if you need to borrow only a small amount.
To learn more, read our PNC Bank personal loan review.
7. Try to get preapproved
Although it’s not a solid guarantee, preapproval is when a lender extends an unofficial offer on a loan, pending full approval.
In this instance, preapproval will tell the borrower what loan amount, terms, and repayment schedule they will likely qualify for in advance. Also, a preapproval acknowledges that the borrower has met the bank’s general eligibility requirements.
You won’t impact your credit score if you check your loan rates for preapproval, because most companies only produce a soft credit inquiry when pulling your credit report. That won’t be visible to third parties or affect your credit score.
The process usually includes an application and a credit history evaluation. Remember that while it’s a worthwhile step to take, there’s no guarantee that the bank will extend the exact same terms when it comes time to issue a loan.