Many, or all, of the products featured on this page are from our advertising partners who compensate us when you take certain actions on our website or click to take an action on their website. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and heres how we make money.
Getting approved for a bank loan may seem like a daunting process, but it doesn’t have to be with the right preparation and knowledge. While approval criteria varies by lender, most banks evaluate applications based on similar factors – your credit history, income, existing debts and purpose for the loan.
Understanding these key elements can help you put yourself in the best position to get a bank loan. Let’s take an in-depth look at what banks look for when reviewing applications and tips to boost your chances of getting approved.
What Banks Look For When Reviewing Loan Applications
When you apply for a personal loan from a bank, they will carefully review your application to determine your ability to repay the debt. Here are the main factors lenders consider
Your Credit Score and History
Your credit score gives banks insight into how responsibly you’ve managed credit in the past. Most banks require a minimum score in the mid-600s, though some may approve borrowers with scores in the mid-500s
Lenders also analyze your credit history, looking for consistent on-time payments, a healthy mix of credit types (credit cards, auto loans, mortgages) and low credit utilization (the percentage of your available credit you’re using). A strong history indicates you are likely to repay new debts.
Your Income and Existing Debts
Banks want to see you have enough income to cover your current obligations and the new loan payment. They calculate your debt-to-income ratio by dividing your monthly debt payments by your gross monthly income. Most lenders look for a DTI of 36% or less.
Lenders also consider your other financial obligations – car loans, credit card balances, student loans, child support, etc. Too much existing debt can make approval difficult.
Collateral
For large loans, banks may require an asset like a car or home equity to secure the debt. This collateral protects the lender if you default on the loan. Strong assets can boost your chances of approval.
Your Requested Loan Amount
Most banks cap personal loans at $50,000-$100,000. Requesting an amount on the higher end without strong finances likely won’t be approved. Ask only for what you need and can reasonably afford.
Purpose and Plan for Repayment
Banks want to know what the loan will be used for and how you plan to repay it. They prefer borrowers use funds for responsible reasons like consolidating high-interest debt, home renovations or medical expenses.
Having a solid repayment plan with stable income sources reassures lenders you can manage this new obligation.
Tips to Improve Your Chances of Getting a Bank Loan
While the loan application process depends on your individual financial situation, there are steps you can take to put yourself in a better position for approval:
-
Boost your credit score – Request a free copy of your credit report and check for errors. Pay down balances and make on-time payments to improve your score.
-
Lower your debt-to-income ratio – Pay off credit cards and other debts to reduce your DTI. Avoid taking on new obligations until after you apply for a loan.
-
Build your credit history – If you have limited credit, get a secured credit card or become an authorized user on someone else’s card. Use responsibly.
-
Increase your income – Lenders like to see stable income sources. Consider taking on a side gig to supplement your earnings.
-
Save for a down payment – For large loans, have funds for a 20% down payment. This shows lenders you’re financially prepared.
-
Apply for a preapproval – Preapprovals allow you to check your eligibility with no risk to your credit score. This gives you an idea of what to expect.
With some strategic financial moves, you can get your finances in top shape and approach lenders with confidence.
Step-by-Step Process to Apply for a Bank Loan
Ready to move forward with a loan application? Here is a step-by-step overview of the process:
1. Choose a Bank
Research different banks and compare interest rates and fees, loan amounts, terms, eligibility criteria and application processes. Local banks and credit unions are good options.
2. Check Loan Requirements
Confirm you meet the lender’s minimum credit score, income and other requirements. If criteria isn’t listed online, call the bank to inquire.
3. Submit Documentation
Applications require personal information, income verification, bank statements, tax returns, contact info for references, and details on collateral if applicable.
4. Complete the Application
You can apply online, in person at a branch, over the phone or through the mail. Be sure to complete all sections fully and accurately.
5. Wait for an Approval Decision
The lender will review your application and make a decision. This can take anywhere from one day to a couple weeks depending on the bank.
6. Accept the Loan Terms
If approved, the bank will present you with the loan agreement detailing the interest rate, fees, loan amount and repayment terms. Make sure you understand and agree to the terms before signing.
7. Receive the Funds
The bank will distribute the loan amount directly into your bank account, usually within a few days of signing the agreement.
With the right preparation, getting a bank loan approval is very achievable. Focus on bettering your finances, choose the right lender and submit a strong application. Follow this guide and you’ll be on the path to getting the funding you need.
:max_bytes(150000):strip_icc()/how-to-get-a-loan-315510_V1-e8212e1a3dfe43358308f689cf51a284.png)
Check whether you qualify for a bank loan
- Personal details, including name, address, phone number, date of birth and Social Security number.
- Loan details, including desired loan amount, purpose and repayment term.
- Proof of employment and income.
- Information about current debts.
The Pros and Cons of Personal Loans
FAQ
How hard is it to get approved for a bank loan?
Many lenders have hard minimum credit score requirements. Some offer loans to borrowers with thin or bad credit (scores from 300 to 629), but people with good or excellent credit scores (690 or higher) typically get the best annual percentage rates and terms.
How hard is it to take out a bank loan?
Key takeaways. To get a personal loan, you’ll need good credit, a stable income and a steady employment history. Bad credit loans are available, but rates can be high and loan amounts may be limited. You’ll qualify for a lower, more competitive rate with good-to-excellent credit.
How hard is it to get a $5000 loan from a bank?
Requirements for a $5,000 loan vary by lender. But in general, you should have at least Fair credit, which is a score of 580 or above. Lenders may also look at other factors, such as your income and your debt-to-income ratio (DTI), during the application process.
What bank is easiest to get a loan from?
Is it harder to get a personal loan from a bank?
It may be more difficult to get a personal loan from a bank than a private lender, but it’s important to compare a variety of personal loans and find the best interest rate for your financial situation.
Should you get a personal loan?
Many national and local banks offer personal loans that can be used to consolidate debt, to make home improvements or for other large expenses. Bank loans range from $1,000 to $100,000 and can have low interest rates as well as perks for existing customers — making them a smart option for borrowers.
Can you get a personal loan if your credit score is low?
Credit union: Your credit score is below average and you can’t qualify with a bank, or you pre-qualify for a loan with a lower rate when rate shopping. Bank or credit union: You want a small loan that’s easy to take out, so you choose the bank or credit union you already have a relationship with. How Do People Use Personal Loans?
Why are unsecured personal loans more difficult?
Unsecured personal loans are more difficult to obtain because they are riskier for the lender and come with higher interest rates and more stringent eligibility requirements. The type of personal loan and the lender you borrow from can both impact the difficulty of obtaining the loan.
Do you need a good credit score to get a loan?
Lately, it may take more than just a good credit score for many people to get approved for a loan. New research shows banks and other lenders have tightened their lending standards to an extraordinary degree in recent months.
Can you get a loan if you have good credit?
McBride said that although loan application rejections are up and standards are tougher, getting a loan is still possible for those with good credit. “Where it’s most difficult are riskier borrowers,” he said. “There’s less credit available, and what’s available costs considerably more.”