What Are Your Personal Loan Approval Odds?

Thinking about applying for a personal loan? Here are the chances you'll be approved. 

Personal loans can be a cost-effective way to borrow. The interest rate on personal loans is often lower than the rate you'd pay on other kinds of debt, such as credit card debt. And you can use the personal loan for any purpose you'd like, which makes them great for consolidating debt or making big purchases.

But not everyone gets their personal loans approved. And you shouldn't apply if you don't think you're likely to be approved. This is because the application itself can lead to a hard credit check and these can in turn harm your credit score -- making it even more difficult to get approved for other loans in the future. 

A woman filling out an application.

Image source: Getty Images

The good news is that there are ways to predict your personal loan approval odds. You can do this by seeing how you measure up in terms of the key criteria lenders look at. These include your credit score, your income, how long you've worked at your job, and how much other debt you're already carrying.

Criteria for personal loan approval

Different lenders set different standards for personal loan approval. Some are more willing to be forgiving of a low credit score than others, and some are even willing to look beyond your credit score and consider other factors, such as whether you have a good income and what your job is.

In general, however, most mainstream personal loan lenders -- as opposed to those who cater specifically to people with bad credit -- have some basic minimum requirements you'll need to meet to get approved. 

Typically, to maximize your chances of getting approved for a personal loan, you'll need:

  • A good credit score: Most lenders look for a score of 660 or higher. Your credit score is determined by your payment history, the amount of credit you're using relative to the credit you have available, how much new credit you've applied for, the age of your credit history, and the types of credit you already have. 
  • Proof of income: Lenders are going to want to see that you have enough income to repay what you're planning to borrow. Some lenders have minimum income requirements, such as requiring you to earn at least $20,000. Others have no set income limits but will instead compare your income to the amount you want to borrow so they can assess whether you earn enough money to cover the loan payments.
  • A reasonable debt-to-income ratio: Your income isn't the only factor that affects the likelihood that you'll be able to repay a loan. Lenders also look at your outstanding debt balance to see what you owe relative to your income -- and many lenders require a debt-to-income ratio of around 35% or less. Your debt-to-income ratio is calculated by dividing your total monthly debt payments by your monthly income. 
  • A solid employment history: Lenders may be wary if you've changed jobs recently or if you only recently started earning at your current income level. If you've been with your job for at least a year or two, you have a much better chance of getting approved. 

Your odds of getting approved for a personal loan

Your odds of getting approved for a personal loan are determined by how well you stack up against these key criteria.

You are almost certain to be approved by at least some lenders for a personal loan if you have good credit, make enough money to easily repay your loan, have been at your job for a while, and your debt-to-income ratio is below 35% -- even when factoring in the payment on the loan you're applying for.

But if you have a credit score that is below 660, have very little income or are unemployed, and already owe a lot, then your chances of being approved for a personal loan are extremely low. In fact, many conventional lenders will reject you outright because they see you as too risky to lend to.

You can find bad-credit personal loan lenders that may approve you even if you don't fulfill the criteria lenders look for in borrowers. Unfortunately, many of these lenders charge very high interest rates and it is not a good idea to borrow from them. Watch out for lenders that specifically market bad-credit loans or advertise that they'll offer you a loan without a credit check. Chances are good that these lenders are going to charge you a fortune if you take out a loan from them. 

The best way to get approved for a personal loan

The best way to get approved for a personal loan is to make sure you've proven that you are a reliable, responsible borrower. If necessary, work on improving your credit score, paying down your debt and wait until you have held your current job for a while.

But if you can't qualify on your own for a personal loan and you need the cash urgently, you can also maximize your chances of loan approval by finding a cosigner. A cosigner agrees to be responsible for repayment if you don't pay back the loan -- and lenders will consider the cosigner's credit and income when deciding whether to approve you. 

You should also look for a lender that caters to borrowers with your financial profile. If your credit is fair-to-good, it makes little sense to try to take out a personal loan from a lender that only provides loans to people with excellent credit.

The good news is that many lenders allow you to get preapproved for a personal loan before you formally apply -- and you can get preapproved with a soft credit check only. A soft credit check won't result in an inquiry going on your credit report, and your credit will not be affected. 

You should get preapproved by several different personal loan lenders to compare rates and terms before you move forward with the application process. This will help you determine if you can qualify for financing on favorable terms before you’ve gone too far into the borrowing process. 

Should you apply for a personal loan?

You should apply for a personal loan only if:

  • You're borrowing for something important. Although personal loans are cheaper than many other forms of credit, you are still going into debt and will have to pay interest. Don't commit yourself to this obligation unless you really need to borrow.
  • You've found a lender you're likely to qualify with. Don't apply for a personal loan you're clearly unqualified for and risk hurting your credit in the process.

Ideally, you should only apply with a lender that has preapproved you and that is offering you an affordable loan. Only borrow an amount you can pay back within a short time period so that you can become debt-free ASAP. 

Now you understand more about your personal loan approval odds

Now you know some key details about your personal loan approval odds, including the factors that affect whether you'll be approved, as well as how you can maximize your chances of getting a personal loan.

Remember, don't apply unless you meet the personal loan lender's qualifying requirements for credit, income, and debt-to-income ratio -- or unless you have a cosigner who will guarantee the loan and increase your chances of approval. And always try to get preapproved first so that you don't hurt your credit by applying for a loan that you ultimately aren't qualified to take out.

Our Picks of the Best Personal Loans for 2019

We've vetted the market to bring you our shortlist of the best personal loan providers. Whether you're looking to pay off debt faster by slashing your interest rate or needing some extra money to tackle a big purchase, these best-in-class picks can help you reach your financial goals. Click here to get the full rundown on our top picks.

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