Personal loans can come in handy for a variety of reasons, including when you run into an unexpected car repair, medical bill, or home maintenance need. Unfortunately, it can be hard to secure a personal loan when you have a low income.
Luckily, it’s possible to find a personal loan when you have a low income — though you’ll likely have a higher interest rate. Here’s what you need to know about low-income loans, including how to qualify for one.
A low-income loan is the same thing as a personal loan — a flexible loan you can use to purchase a variety of things or to consolidate debt. A low-income loan simply refers to the income level of the borrower. Lenders who offer low-income loans may have low or no income requirements for potential borrowers. These lenders tend to focus on other criteria, such as your credit score, overall credit history, and current debts.
Unfortunately, low-income personal loans often come with higher interest rates, since the lender may determine that there’s a risk you won’t repay the loan.
Related: Learn more about getting a personal loan on Credible.com
Here are eight Credible partner lenders that offer personal loans to low-income borrowers:
Your income may not be the primary factor a lender takes into consideration if it offers low-income loans. Instead, lenders may focus on your likelihood of affording and repaying your loan.
While income plays a role in this, lenders also learn a lot by considering your debt-to-income (DTI) ratio, which analyzes your monthly debt payments in comparison to your monthly income. For example, if you have a $1,000 rent payment each month in addition to a $300 car payment, you have $1,300 in debt each month. If your monthly income is $3,000, your DTI ratio would be 43% ($1,300/3,000 = 0.43).
Lenders generally prefer a lower DTI. If your DTI is too high, it may be hard for you to afford your various debt payments, which can make lenders less willing to work with you. When applying for a personal loan, aim to have a DTI no higher than 40%.
Your history of making on-time debt payments also comes into play here, which is why lenders will review your credit history and credit score. If you’ve worked with the lender in the past, the lender may also take your relationship with them into account.
Here are a few ways you can improve your odds of qualifying for a personal loan with a low income:
Any amount of eligible income you have can help you increase your chances of qualifying for a low-income loan, so it’s important to include all of them in your application, such as:
If a lender allows cosigners or co-borrowers, including one on your loan application can make it easier to qualify for a low-income personal loan. Lenders will take into account both applicants’ credit scores, income amounts, and debts.
If your cosigner has excellent credit or a high income, a lender may perceive this as a higher likelihood that you’ll make on-time payments and repay the loan in full. Not only can cosigners or co-borrowers make it easier for you to qualify for a loan, but they can also potentially help you secure a better interest rate.
Keep in mind that if you fall behind on your monthly payments, your cosigner will be responsible for repaying the loan.
Improving your credit score is one of the best things you can do to make yourself a stronger personal loan applicant. To do so, make on-time payments, pay down as much debt as you can, and fix any errors on your credit report that may be bringing down your credit score.
If you’re struggling to qualify for a low-income loan or aren’t happy with the interest rates that lenders are offering you, consider the following alternatives:
Related: Learn more about getting a personal loan on Credible.com