
Documents are required for a personal loan
Loan Application
Unlike the Uniform Residential Loan Application Form (1003 Mortgage Application Form ), personal loan applications are unique and provided by your lender. You need to fill in your name, address, loan requirements, income, and liabilities.Valid ID Proof
You need to submit a valid ID proof along with your long application form. It may be any of the following.- Birth certificate
- Certificate of citizenship
- State-issued ID
- Passport
- Driver’s license
- Military ID
Employer and Income Verification
If you are salaried, you can provide any of the following to verify your income. Make sure to include the contact details of your employer.- Income tax returns
- Bank statements
- W-2s and 1099s
- Paystubs
- 1099s
- Income tax returns
Proof of Address
- Driver’s license/Insurance card
- Utility bill
- Property Tax Receipt
- Lease or rental agreement/Mortgage statement
- Voter registration card
- Bank or credit card statement
- College enrollment papers
Credit score and payment history
The most fundamental aspect of the loan evaluation process is your credit score. Credit scores range anywhere between 300 and 850 due to factors such as length of credit history, amount of outstanding debt, and payment frequency. Lenders use your credit score to determine the interest you pay, expressed as an annual percentage rate (APR). As of 2020, the average APR on personal loans in the United States is 9.34%, but it can range between 6 and 36 percent, depending on your creditworthiness. As shown in the table below, the higher the credit score, the lower the APR.Income Verification
Income verification is one of the key requirements for a personal loan. Lenders must validate that an applicant can repay their term loan on time. To do this, financial institutions may require pay stubs, bank statements of varied lengths, W-2s and 1099s, Schedule C self-documented income, 1040 federal and state tax returns, employer contact information, and in some cases, credit card processing statements. The exact document requirements will depend on the nature of credit you seek. For example, if you are requesting a long-term personal loan in high amounts, your lender will want to analyze your long-term financial performance. Although some lenders may have minimum salary requirements for personal loans, there is no universal minimum since most will be interested in your financial commitment, assets, expenses, current debt, employment status, and credit history.Proof of identity
Lenders will need proof of both identity and residence as prerequisites for loan consideration. Typically, most lenders will require your social security card, DL, proof of legal residency, passport, or military ID. In addition to authenticating your identity, these documents will also allow your lender to pull your personal credit scores to determine your loan limits and APR.Loan Application
Every lender has its own loan application form. It can be manual or electronic. You need to fill in your personal details and loan requirements in the loan application. You may need to give your consent for a credit score check while applying. Some lenders charge an application fee (also known as credit appraisal) during this stage.Get Prepper
When taking out a personal loan, it is essential to set goals realistically to ensure that your application is quickly processed. First and foremost, it is critical to determine beforehand how much you want to borrow and the type of personal loan you want, whether secured or unsecured. First, it is vital to establish your debt to income ratio, which is your total monthly debt payments divided by your total income. Usually, lenders prefer a ratio less than 0.4, which means your total mortgage/loan payments should be less than 40% of your income. You may also want to consider how much you can afford to pay, considering all the penalties and fees involved if you cannot settle your loan on time. When borrowing, consider all costs, like processing, repayment, and late payment fees. Check your credit score to determine your creditworthiness before applying for a loan. It will help you compare different interest rates for your credit score range. A lower credit score may result in rejection, while frequent credit-score checks can further dampen your credit score. Make sure to apply for loans from lenders that accept your credit score range.How to Apply for a Personal Loan
The following are five simple steps that can help you through the process of applying for your ideal personal loan.- Determine Your Credit Limit
- Get Prequalified for a Loan
- Compare Offers
- Pick a Lender and Apply
- Approval, Funding, and Closing
Conclusion
There is a lot to consider when applying for a personal loan. But, once you are sure of all the necessities, including personal loan documents and underlying terms and conditions such as interest rates, origination fees, and penalties, applying for a personal loan becomes a straightforward undertaking. The importance of a thorough personal examination cannot be overstated. It not only improves your chance of approval and helps you secure lower interest rates on your personal loans.Article Topics