Loans

Personal Loan Documentation: What Do You Need?

Personal loans come in various amounts, with different interest rates, a long or short repayment period, and multiple terms. And when it comes to personal loan documentation, there’s a lot you may need for your application.

Like other loans, such as an auto loan or mortgage, an applicant will have to provide certain documentation. The kind of documents you will need will depend on the type of personal loan you’re applying for. Your credit score may also play a role.

Below you will find everything you need to know about personal loan documents. In addition, you’ll find some information on the personal loan application process, and what it means to be financially stable.

What Are The Standard Documents You Need For a Loan Application?

The application process for most personal loans will require the following documents:

A Government Issued Identification (most will ask that it is a photo ID)

This is to verify your identity. Documents like Driver’s licenses, passports, a Permanent Resident Card, a Military ID, or a Foid Card are a few examples. Keep in mind that whatever form of identification is used, it must be up to date.

Proof of Income

When an applicant has been employed, documents such as pay stubs or tax returns may be used to verify income. If you don’t have a job, use documents like letters of income, reward letters, bank statements, or income tax returns.

Proof of Address

Lenders will need proof of address to be able to contact you if needed. Acceptable forms of documents that can be used for address verification are utility bills, your voter registration card, a copy of a lease or mortgage agreement, bank statements, pay stubs, and excepted forms of mail. Many lenders may ask for at least two forms of these documents.

References (sometimes)

A lender sometimes asks for a few references to verify any information from above. People such as employers and landlords may be contacted.

A Completed Loan Application

Lastly, a personal lender will ask for a completed application. Most personal loan applications will need information on income, contact information, and desired loan amount. You’ll also need your social security number or a taxpayer identification number to check your credit score and credit history.

A Secured Personal Loan vs. An Unsecured Loans

It’s important to know the difference between unsecured vs secured debt. Unsecured loans do not involve an asset, and because of this, a borrower will need to have good credit to get approved. On the other hand, secured personal loans require collateral in the form of an asset and can be viable for those with less-than-fair credit.

With secured loans, a lender can rely on the value of the involved asset to make up for the risk they are taking when working with an individual whose credit score isn’t established yet or needs some repair. However, those with subprime credit may find that their personal loan interest rates are higher than those whose credit scores are higher.

When an asset is involved, an applicant will need to provide certain documents related to its ownership. For example, if the asset involved is a vehicle for a title loan, you will need to provide documentation such as the car’s title and up-to-date registration. Or, when a piece of real estate is involved as collateral, the lender will need the title to the home.

And so, when applying for personal loans that involve an asset, most lenders will ask an inquirer to have additional documentation,

Why Do I Need to Provide All This Personal Information With These Loans?

Lenders will ask for the documents listed above because they will have to verify a few critical pieces of information:

  • Identity — To ensure no identity theft occurs or misinformation is presented, a lender will need your photo ID.
  • Contact Information — One of the most critical pieces of information for a lender is your contact information. Not only is this important for the borrower to keep updated with loan payments, but for a lender, if the loan has defaulted, this is their only starting point for getting their funds.
  • Ability to Repay the Personal Loan — Your income going into a loan agreement is a massive part of the approval process. Personal loan lenders need to verify that you can repay the loan each month and on time. And so, getting a look at your credit history will help the lender determine your income to debt ratio and the risk they are taking.
  • Your Financial Habits — Because a credit score encompasses variables like payment history and the amount of financial experience a potential borrower has, it will help a lender assess eligibility, interest, and personal loan amount.

What Personal Loan Documents Do I Need If I Have a Co-signer?

Many people whose credit isn’t in the best shape or doesn’t meet the minimum income requirement for a personal loan may want to add a co-signer to their loan. A co-signer adds security for the lender and ensures that another person will pay the loan back if needed.

A co-signer is usually a friend or family member that is willing to sign up to repay the loan in the instance that the primary borrower cannot make their monthly payment(s) or repay the loan altogether.

In some cases, a co-signer may get their application after the primary borrower has provided all the necessary documents. Lenders will expect Co-signers to give some of the same documents as the primary borrower:

  • A gov. Issued photo ID
  • Proof of income
  • Proof of Residency
  • References

Additionally, the co-signer will have to agree to be responsible for the personal loan if the borrower cannot repay the loan.

When done right, adding a co-signer to a loan can help the borrower improve their credit score, and in the future secure a more considerable loan amount and have access to other types of lending such as auto loans/car loans student loans, and mortgages.

How Can I Make Sure My Personal Loan Documents Are Secure When Filing out a Loan Application?

If you’re looking for a personal loan, you will find most lenders in person or online. When providing documents for your personal loan application, it will be essential to make sure those documents are handled safely.

If you’re applying for a personal loan through a hard copy of documents, verify that copies of any sensitive information are shredded or filed securely.

And when filling out a personal loan application online, make sure that the lender is reputable and trustworthy. Once that is done, look into whether their website is encrypted, along with the security of any email servers they may have. Not only will applying with an unsecured lender be a risk, but also things like making payments with an unprotected lender could pose risks for your information.

What Can You Use a Personal Loan For?

Below are some of the common uses for these loan products:

  • Monthly bills and payments
  • Large purchases
  • Educational purposes
  • Loan refinancing
  • Credit Card payments
  • Trips or Recreation
  • Medical Emergencies
  • Funeral Expenses
  • Vet Bills or Medical Bills

Online personal installment loans are sought out because they are readily available from many financial institutions. As a result, an applicant may be approved regardless of being self-employed, a freelancer, or having a traditional form of employment.

These loans can make money available quickly, sometimes the same day, and that money can be used for various expenses. When applying for a personal loan, most lenders will ask that you provide several documents. Some of these will be used for identity verification, address proof, verification of collateral ownership, give the lender a chance to gauge the security of those payments for their funds. Before providing any documents, make sure to check a lender’s credentials to ensure your personal information is safe.

References:
What documentation is required for personal loans?