What Are the Key Documents Needed for Personal Loan Approval?

5 Must-Have Documents for a Personal Loan Application 

In today's world, where almost anything can be achieved with the click of a button, obtaining personal loans has also become a seamless experience. Getting a personal loan might be a real lifesaver. Personal loan documentation can be stressful & tiring. In this article, we will explore the checklists for personal loan documentation & things to do if your personal loan application gets rejected.

Key Highlights

  • Each lender will have specific requirements for these personal loan documentation steps.

  • Working on your credit score is always viable if securing a personal loan is not necessary. Post improvement, you can reapply for a personal loan with increased odds for approval.

  • Lenders often want an overview of your monthly expenses. This includes utility and housing costs, auto loan or student loan payments, credit card payments, and insurance premiums. 

What Documents Are Required to Apply for a Personal Loan?

A personal loan provider may request documentation proving your identification, income, and creditworthiness. Here are the general documents required for a personal loan:

  1. Identification proof like a passport or driver's license

  2. Proof of income with documents such as pay stubs or bank statements

  3. Evidence of employment

  4. Proof of residence with documents like a utility bill

  5. Credit score report

  6. Loan application form

The checklist may vary slightly from lender to lender based on your state of residence and credit scores, but these are standard requirements.

Documents Required for a Personal Loan, STEP-BY-STEP

1- Navigating the Application Form

The first step to acquiring your desired loan is to fill out the application form. The application procedure varies across different lenders. Traditional banks and credit unions may allow the option of completing the form in person or online. However, online lenders have made this task entirely digital. The form checks your qualifications for the loan.
Information Required
Every lender might ask for different details, but they generally include the following:

  • Full name

  • Contact information

  • Date of Birth

  • Social Security number

These details will likely be used for identity verification. The lender will also ask for specific details like your desired loan amount, purpose, gross monthly income, and mortgage payments.

2- Proof of Identity: Your Key to Loan Approval

Lenders must verify your identity to confirm your eligibility for their loan services. In general, you will be required to provide two valid identification documents such as:

  • Birth certificate

  • Certificate of citizenship

  • Driver's license

  • Military ID

  • Passport

  • Social Security card

  • State-issued ID

Apart from these personal details, the lenders might ask for further information related to the loan, such as the desired loan amount, repayment term, and financial specifics like gross monthly income or rent.

3- Employer and Income Verification: An Assurance of Repayment

Personal loans are unsecured loans and, hence, require no collateral. But this increases the lender's risk. Therefore, they need assurance that you have a consistent source of income for loan repayment.
Documentation for Income Verification
Traditionally employed individuals can verify their income using the following:

  • Pay stubs

  • Tax returns

  • W-2s and 1099s

  • Bank statements

  • Contact information for your employer

  • Self-employed or freelancers can show:

  • Bank statements

  • 1099s

  • Income tax returns

Help from your HR or payroll department, payroll provider's online database, or a professional tax advisor can ease the process of locating these documents.

4- Proof of Address: Verifying Your Residential Stability

Your residence information is crucial for lenders as it evaluates your lifestyle's stability. The typical documents that can be used as proof of residence include:

  • Utility bill

  • Lease or rental agreement

  • Mortgage statement

  • Proof of home or vehicle insurance

  • Voter registration card

  • Property tax receipt

  • Bank or credit card statement

If you've recently changed your address, the U.S. Postal Service can help you confirm it.

Plan B: What If Your Personal Loan Application Gets Rejected?

Gaining approval for your personal loan is not always guaranteed, but do not fret - you are not out of options. There are multiple routes to explore if your application gets declined:

Acquiring a Co-signer

A reliable family member or friend may come on board as a co-signer for your loan. Co-signers shoulder legal responsibility for the loan and sign on the application, potentially increasing your chances of loan approval. However, it's crucial to remember the responsibility this places on the co-signer. If you falter on payments, this can also negatively impact your credit rating,

Securing a Personal Loan

Unlike traditional unsecured personal loans, securing your loan by providing collateral like your house or car can lower the risk for the lender and heighten your approval odds. However, this approach carries its inherent risks. If you struggle to make repayments on time, the lender has the right to seize your collateral.

Boosting Your Credit Score

Working on your credit score is always viable if securing a personal loan is not necessary. Strategies such as paying down debts, enhancing your income, or reducing your debt utilization ratio can boost your credit score. Post improvement, you can reapply for a personal loan with increased odds for approval.

Exploring a Credit Card

Are you going for small purchases under $1000? Credit cards are great! But for big ones? Not so much. Personal loans, like credit cards, have a similar application process. You can choose the best option easily.

More Data Points: What Else Do You Need While Applying for a Loan?

Acquiring knowledge of personal loan documentation is just half the battle won. Here's more information you might need handy when applying:

Credit Score

Yes, some lenders are more lenient and willing to chance those with lower scores, but not all. With a low credit score, the interest rate might be slightly higher.

Loan Purpose

Lenders might have their specific loan products based on the purpose of your loan. Are you seeking to consolidate debts, fund a wedding, or cover home improvement costs? Clarifying your goal can help establish the right product for you.

Monthly Expenses

Lenders often want an overview of your monthly expenses. This includes utility and housing costs, auto loan or student loan payments, credit card payments, and insurance premiums. This data is crucial to ascertain whether you can manage the personal loan payment comfortably or not.

The Bottom Line

Preparing yourself with all the necessary personal loan documentation and knowing what alternatives exist if your loan application is rejected can arm you with the confidence to navigate the personal finance realm. Knowledge is power, and knowing what's expected gives you a clear path forward. Always remember that while lenders may have differing requirements, having a general understanding of what you may need.

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19 Nov, 2023


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