When you are in need of some serious financial help, applying for a personal loan could prove a good solution. However, it can become more complicated when you have concerns that you won’t meet the requirements needed for approval.
If you’re currently unemployed or have very little income, you might be under the impression that you won’t be able to qualify for any personal loans. You might have more options than you realize with low-income loans and no-income loans.
Typical Requirements For Personal Loan Approval
The requirements for personal loans can vary from lender to lender and depending on what type of personal loan it is. However, most personal loan options will require some kind of income verification and credit report check in the application process.
Credit Score
Your credit report will be pulled and reviewed every time you fill out an application to get a personal loan. A higher credit score, the more likely you are to qualify for the loan. Having an impressive and well-established credit history will also help you gain access to competitive interest rates that could save you a lot of money.
Income Verification
Oftentimes, lenders will require some form of income verification before approving a borrower for a loan. Each lender will have different guidelines for the minimum income they look for, but the primary purpose of this verification is for the applicant to prove their ability to repay through scheduled monthly payments. Proof of monthly income gives personal loan lenders the assurance they need to know you can afford to pay the loan back.
What Qualifies As Low-Income for Personal Loans?
There are lenders out there, particularly online lenders, who don’t have a minimum income requirement set in stone for their personal loans. Since lenders set their own criteria for who can borrow money from them, you will be able to find personal loans for a wide range of monthly or annual income.
Borrowers with lower incomes should expect to qualify for small loan amounts and higher interest rates even with a financial institution that doesn’t have a minimum income requirement.
If you have excellent credit or are offering some kind of collateral to the secure the loan, then you might be able to qualify for more significant amounts and more competitive rates despite a low annual income.
Personal Loan Options for Minimal Income
Though a majority of personal loans will request some type of income verification in their loan application, there are still plenty of options in the lending industry for individuals who need low-income or no-income loans.
Secured Loans
Applying for a secured personal loan could make it easier for you to qualify despite having little to no income. Secured loans work well as no income loans because they reduce the risk to the lender through collateral. A secured loan allows the lender protection of knowing they will lose less money even if the borrower defaults on the loan.
Many types of installment loans are secured loans, including mortgages, auto loans, home equity loans, and title loans. You can typically receive a more competitive interest rate when a loan is secured than you would be able to get with a conventional unsecured personal loan, especially if you have little income and a poor credit score.
Unsecured Loans
There are some unsecured options for low-income loans, but you might have to pay a higher interest rate unless you have a really good credit score. To be approved for an unsecured loan, you will need to show that you have the ability to make the monthly payments to repay the total loan amount.
Commonly, the loan options that have the most flexible qualification requirements are bad credit loans like a pay day loan online or an auto title loan. It’s important to keep in mind that these types of loans have extremely high-interest rates.
How To Qualify for Low Income and No Income Loans
No income loans work by relying on other income sources or reducing the risk to the lender in other ways. An excellent credit history can make a big difference in qualifying for the best no-income loans.
Use Other Sources of Income
You don’t need to have traditional paystubs to have acceptable proof of income to get a personal loan. There are plenty of other satisfactory income sources. For example, self-employed borrowers can offer proof of self-employed income through bank statements or tax returns.
Unconventional income like verified assets, rental income, social security benefits, child support, retirement income, or other investment income is also typically acceptable to get a loan. All you need to do is prove that you are able to make the minimum payments on your loan. It doesn’t exactly matter where the income comes from, just that it’s there to repay the loan.
Apply For a Smaller Amount
If you don’t have enough income to qualify for a large loan, you can always apply for a smaller loan amount to get some quick funding. With a smaller loan, you will have smaller monthly payments which will be easier to make with a reduced income meaning you might have a higher chance of being approved.
Get a Co-Signer
If you don’t have sufficient income to get a personal loan, you can use a co-signer in your application. By having a co-signer on your loan application, the lender can utilize your co-signer’s income as proof that you can repay the loan.
You can ask a family member or a friend to help you out by being a co-signer. It is important to make clear to them that they will have a legal responsibility to pay the loan if you default on it.
Other Alternatives to No Income Loans
There are other alternatives to the traditional personal loan for some quick funding to cover expenses while your income is low. If you have a good support system surrounding you, you could ask a friend or family member to lend you some money while you get back on your feet. This could get you some temporary financial assistance without having to be concerned with interest rates.
On the other hand, many people choose to avoid mixing their personal relationships with personal finances as it can cause issues down the road. Here are a few other options of personal loan alternatives:
Credit Cards
While relying on credit cards to heavily for an extended period of time can lead to problem debt, they can make a good temporary solution for covering expenses while you get back on track with your finances.
Some credit card companies offer 0% APR promotions that could allow you to borrow money at zero interest for a year or 18 months. As long as you pay off the balance by the end of the promotional period, you will pay significantly less for the money borrowed than you would on a personal loan.
Cash Advances
Cash advances can make another excellent short-term alternative to personal loans. You can get a cash advance via a credit card issuer or get a small cash advance loan from an online lender.
It’s important that you’re aware that cash advances typically need to be repaid rather quickly and come with higher interest rates. Before applying for a cash advance, ensure that you can pay it back on time and have the means to handle the charges it might accrue.
Alternative Payday Loans
There are some credit unions and online lenders that offer alternatives to payday loans for individuals who need some temporary financial relief until their next paycheck. A payday loan will typically be paid back in one lump sum and charge incredibly high interest.
However, these alternatives give you some extra time to repay the total loan amount and offer more reasonable interest rates. You will likely need some kind of income to qualify for payday loans, but you won’t necessarily need a high income, especially if you are applying for a smaller loan amount.
Make Your Loan Payment On Time
The bottom line is that it is possible to get a personal loan with little to no traditional income. However, you might need to be prepared to pay some higher interest or settle for a smaller loan amount. Having an impressive credit report will help you get approved installment loans as well.
It is vital that when you do receive your loan, you don’t make any missed or late payments despite a low income because they could result in a poor credit history. Making all your payments on time will increase your credit score, making it even easier to be approved for loans in the future.
References:
How to Get a Personal Loan With Low Income – Experian