When you apply for a loan, most lenders check your income to make sure you earn enough for repayment. But that doesn’t mean low-income workers are ineligible for a loan. If you have a low-income job or live on government benefits, you may still qualify for a personal loan from an online lender.
Learn about some of the best low-income lenders, how to compare your options, and when to consider alternatives.
Personal loans for low income
Some low-income lenders do not have minimum income requirements, while others may require you to earn at least $3,500 to $20,000 annually. Note that low-income loan amounts for some lenders vary by state.
Types of low-income personal loans
A personal loan is a lump sum of money provided by a bank, credit union, or online lender that gets repaid in fixed monthly installments over several months or years. You may be able to borrow $500 to $50,000 with a low-income loan, depending on the lender, but your income will affect the amount. You can use the money for almost any purpose.
Low-income borrowers may be eligible for two types of personal loans.
Secured personal loans
With a secured loan, you agree to put forth collateral, which is something of value that you own. The lender can take the collateral from you if you fail to repay the money you owe.
Examples of collateral include the title to your vehicle, the money in a savings account, and the fixtures in your home. If you apply for a secured personal loan, the lender will still check your credit, income, and current debt. But you may have an easier time qualifying for the loan, or may be able to get a lower rate relative to an unsecured loan.
Not every lender offers secured loans. Here are a few low-income personal loan lenders that do:
Unsecured personal loans
Most personal loans are unsecured loans. That means you don’t need to provide collateral. The lender uses your financial and credit information exclusively to determine the loan amount and annual percentage rate (APR) — the interest rate plus any upfront fees — you’re eligible for.
But if you fail to repay an unsecured personal loan, the lender still has recourse. The lender can’t take your property, but it can begin debt collection efforts, report negative information to the credit bureaus, or file a lawsuit against you.
Compare: Secured vs. Unsecured Personal Loans
How to get a personal loan with low income
1. Check your credit report
The first step to get a personal loan with low income is to check your credit report for any errors and resolve those with the bureaus immediately.
Once you know your score, you’re in a better position to find lenders who will consider your application, since you can eliminate those that require a minimum credit score higher than yours. (Note that some lenders may have different credit score requirements if you apply for a loan with them directly, instead of applying through a loan marketplace.)
2. Check minimum income requirements
While some personal loan lenders don’t specify their minimum income requirements, others do. In all cases, the lender will check to see if you have enough income to manage the monthly payments on your loan.
Try to find lenders with a minimum income requirement lower than your annual or monthly income. For many lenders, government benefits count as income.
3. Know your DTI
Having sufficient income isn’t always enough, though. Lenders also consider your credit score and history, and your debt-to-income ratio (DTI), which is the percentage of your gross monthly income that you spend on minimum debt payments. If your DTI is near or higher than 35%, you may struggle to get approved.
4. Prequalify
Most lenders let you prequalify for a personal loan without any impact to your credit score. You can do this directly on the lender’s website, in most cases, or through a personal loan marketplace online. Prequalification is a quick way to see which lenders you might qualify with, the loan amounts you might qualify for, and the APRs you might be eligible for.
Prequalification is not an offer of credit, but it’s akin to the lender’s best guess of what you might qualify for. Once you apply for a personal loan, the lender will conduct a hard credit pull, which could ding your score temporarily, usually by no more than five points.
Important
The APR accounts for the loan’s interest rate as well as any upfront fees, like administration and origination fees, which makes it a better way to compare loan costs than using the interest rate alone.
5. Compare lenders
Once you’ve prequalified with multiple lenders, compare APRs, loan amounts, and terms. Check lender fees, and whether it charges an origination fee. Though the origination fee is reflected in the APR, it is taken upfront out of the loan amount, and so can reduce the amount you receive. In other words, if you choose a loan with an origination fee, you could have less money deposited into your account than what you applied for.
Also check lender reputations and complaints. You can do this on sites like Trustpilot and the Better Business Bureau. Note that most lenders will have complaints, but look for patterns in those complaints that indicate the same problems occurring repeatedly.
And don’t overlook the customer service options the lender has available. For example, if you prefer to communicate by phone, check that a phone number is easy to find, and call to make sure you don’t get lost in a never-ending phone tree. If you prefer to communicate by app, make sure the lender has one and that the app’s reviews are generally positive.
6. Apply for the loan
Once you’ve reviewed potential options and found the best personal loan that meets your criteria, apply for the loan. If you need a personal loan with fair credit or bad credit, you may want to consider taking steps to improve your score before you apply, if possible.
Be prepared to provide documentation supporting your income like pay stubs, bank statements, or a benefit verification letter if you receive Social Security benefits.
If approved for the loan, review the agreement carefully and note the repayment amount, APR, monthly payment, and when the first payment is due. Once approved, you could receive money the same day, depending on the lender.
How to get a personal loan with low income and bad credit
Getting a personal loan with low income and bad credit can be a challenge. But there are a few ways you can improve your chances of getting approved.
- Explore secured loan options: A loan secured by an asset is easier to qualify for since it’s less risky to the lender. Look into options from low-income lenders, including OneMain and BestEgg.
- Consider credit unions and community banks: If you become a member at a credit union or open an account at a community bank, your relationship with the institution may open up more loan options for you. Credit unions tend to offer lower rates than banks and online lenders.
- Apply with a cosigner: If you have a friend or family member with good credit, they can help you get a loan by applying with you as a cosigner. Their credit profile will provide some reassurance to the lender. However, if you fail to make payments, they’ll be responsible for your debt, so make sure you can afford repayment.
- Improve your credit score: Correct errors on your credit report that may be dragging down your credit score. Your score may also improve as you make on-time payments and pay down debt. Note that these measures can take time. If you’ve been responsible with your rent, utilities, and cellphone bills, you can use a tool like Experian Boost, which may increase your score instantly.
Low-income personal loan alternatives
- Payday alternative loans (PALs): Some credit unions offer PAL I loans, which are available to borrowers who have been members for at least a month, or PAL II loans, which are immediately available to new members. The PAL II option allows you to borrow up to $2,000 and repay the loan in up to 12 months. Both types of PAL have a maximum interest rate of 28%. These loans are designed for applicants who struggle to get a conventional loan and may not require a credit check.
- Cash advance apps: Cash advance apps allow you to receive a small advance on your next paycheck without a credit check. You’ll need a bank account and income to qualify. Cash advance companies may charge fees or request optional tips. To keep costs manageable, avoid expedited funding fees and tips as both can translate to sky-high APRs.
- Friends and family loans: Your friends or family may be willing to lend you money interest-free or at a lower rate than a bank. This can provide more flexibility with repayment as well. Just be sure to get the terms of repayment in writing, and stick with them, to preserve the relationship.
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