When life throws a curveball, and your finances take a hit, getting financing for your personal needs becomes essential. If you don’t have family or friends you can turn to for financial help, getting a personal loan from the bank could be your best option.

However, it isn’t easy to get approved for a personal loan as most banks require you to meet certain eligibility criteria. The amount of money you can borrow will also be limited by your income, assets, and credit score.

In this blog post, we will explore some key tips on how you can get the right type of a personal loan regardless of your circumstances.

Check your eligibility before applying for a personal loan

The first thing to do before applying for a personal loan is to make sure that you are actually eligible for the loan. The terms and conditions of each bank will vary, so you need to carefully go through the eligibility criteria before applying.

Your employment status

Most banks require you to be in full-time employment to be eligible for a personal loan. However, some banks may allow you to apply for a personal loan if you are a freelancer or have an upcoming job offer in hand.

Taking a risk assessment of your personal loan application, the bank may approve you for a personal loan even if you don’t have an occupation or in full-time employment. However, a personal loan with no employment requirement may have a higher interest rate than those for people who are in employment or in full-time employment.

This is to account for the higher risk that the bank is taking by extending the personal loan to you.

Your income

Along with your employment status, your annual income will be one of the key factors that determine your eligibility for a personal loan. The loan amount will depend on the percentage of income that you can use to repay the loan.

Most banks have a minimum personal loan amount of $5,000. The average personal loan amount is between $10,000 and $25,000. You must have a good credit score or above (usually above 680) to be eligible for a personal loan.

Personal loans are interest-free if you pay the loan back within 12 months. You must be at least 18 years old to apply for a personal loan. You must have a verifiable source of income (e.g. pay stubs, W2s, or 1099s) for at least the last 12 months to be eligible for a personal loan.

Your credit score

Although it is not mandatory for banks to check your credit score for a personal loan, most banks will ask you to provide your score before approving your loan application. If your score is low, you will have a tough time getting an approval for a personal loan regardless of your employment and income status.

At the same time, a high credit score will open the door to a wider range of personal loan options. Even if you don’t plan to apply for a loan, a high credit score will come in handy if you ever need to apply for credit in the future. In the United States, about 95% of all banks and lenders look at your credit score when deciding whether to grant you a loan.

Your credit history

If your credit score is low, banks will want to look at your credit history as a way to gauge your repayment ability. If your credit history is short, you will have a hard time getting an approval for a personal loan.

You may not have enough history for a bank to feel comfortable lending to you. You might also have too much history, like a significant amount of debt, that could indicate a serious money management issue.

Furthermore, you can improve your credit score by paying your bills on time and keeping your credit usage to less than 30% of your available credit. You can also improve your credit history by making sure you have a solid plan for getting a loan and paying it back on time.

Other factors

Apart from your employment, income, and credit score, some banks may also consider your other factors, such as age, assets, and debt-to-income (DTI) ratio, to assess your eligibility for a personal loan.

Some banks may require you to have a certain amount in your savings account before you can get a loan. Other banks may offer you a personal loan only if you have a certain amount of assets, like a house.

Shop around and compare interest rates

Once you have determined that you are eligible for a personal loan, the next step is to compare the interest rates offered by different banks. There are two interest rates that you need to take into consideration – the interest rate on the loan amount and the interest rate charged on loan.

The interest rate on the loan amount is what you will have to pay back to the bank along with the principal amount of the loan. The interest rate charged on loan is the interest rate that you need to pay on a monthly basis until the loan payment is completed.