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Here Are the Documents Required to Get a Personal Loan
If you need financing help, a personal loan is the first thing people tend to consider. Personal loans can be a great option for accessing finance in a flexible and manageable way. Applying for a personal loan is usually a straightforward and quick process — but there are required documents for a personal loan that every potential borrower needs to know about. Here are the documents needed for a personal loan and other personal loan requirements.
What’s a personal loan?
A personal loan is a type of loan that borrowers buy from a bank, credit union or online lender. This financial product has an interest rate attached to it, typically around 10%–35% depending on your credit and comes with repayment terms, usually between 12 and 48 months — but it can be longer. Personal loans can be used in a variety of situations, including consolidating debt, paying medical bills, funding home renovations or fixing a financial emergency.
However, some lenders may have limits on what you can use loans for. For example, if you are using a personal loan to fund a business, you may be asked to take out a business loan instead. Another example is educational expenses. Some lenders will prohibit you from taking out a personal loan to pay for school.
Personal loan requirements can vary depending on the lender, but most are unsecured loans. This means you won’t have to put up collateral to get approval.
What you need to know before you borrow a personal loan
While researching personal loans, it’s important to weigh up a few different factors, including:
Your personal loan will come with an attached interest rate — that’s the cost of borrowing the money including fees over a year — and is added to the total amount that you owe the lender. For example, a $1,000 loan paid over 12 months with a 12% APR means you will pay $1,066.33 in total. The personal loan rate can vary depending on several things, especially your credit score, how much you borrow, terms, fees, borrowing history and current financial situation.
[ Next: APR vs. Interest Rates ]
On top of interest rates, you may also have to pay fees. Common types of fees include origination fees, late payment fees or early repayment fees if you want to repay your loan earlier than the agreed loan terms.
This is the length of time you will have to pay off the loan. This can vary between a year or several years. Typically, longer-term loans will be more expensive because there’s more interest to pay for every month the loan is not paid off, but monthly repayments will be lower.
Documents you need to get a personal loan
While each lender could have its own personal loan requirements, most will ask for the following types of proof and documentation.
The first document required for a personal loan application is proof of your identity. Identity theft is commonplace, and lenders need to check whether you are a U.S. citizen or permanent resident and are at least 18 years old. You will typically need two forms of identification such as a driver’s license, passport, birth certificate, military ID, state-issued ID or a certificate of citizenship.
The next thing you will be asked to provide is your address. This is the address where lenders can send your loan documents, monthly statements, late notices and other important correspondence. Furthermore, some lenders will require this document to further verify your identity.
Employment and income details
Finally, a lender will need to know if you can realistically pay back the loan. Ideally, you will be in full-time employment and will be able to provide proof including pay stubs, tax returns or bank statements. If you are self-employed, you may be asked for tax returns or proof of your business’ income. In the event that you are unemployed, lenders may also accept borrowers with Social Security income, disability income and income from other social programs.
Questions you may be asked on a personal loan application
When applying for a loan, lenders may ask some specific questions to determine your eligibility. Some of the most common questions you may be asked include:
What will you use the loan for?
Some lenders have strict rules on what you can and can’t use the loan for. Even if they don’t, most lenders want to know how you intend to use the loan. For example, if you plan to use the money for debt consolidation, then the lender may offer to pay off your creditors directly on your behalf.
How much do you want to borrow?
During the personal loan application process, the lender will most definitely require you to disclose how much money you want to borrow. Lenders usually advertise how much they are willing to lend on their websites, so make sure you borrow within those amounts. Typically, it’s between $1,000 and $50,000, but some lenders will extend up to $100,000.
What is your credit score?
Your credit score is an objective window into your financial health, so it’s a good idea to know what your score is before you apply. When you check your rates and apply for the loan, your lender will look at your credit score to determine the risk of lending money to you. If you have good credit, there’s less risk and a better chance you’ll be approved. If you know you have bad credit, it’s worth researching companies that offer bad credit loans specifically.
How long do you want to pay back the loan?
Most personal loans will have flexible loan terms, allowing you to spread the payments up to around five years. If you can afford high monthly repayments and want to clear the debt faster, opt for a shorter loan term. If not, a longer one is probably best, but the interest rates will cost you more overall.