If you don’t make a lot of money each year, getting a loan can be a complicated process. Lenders give preferential treatment to people who earn substantial incomes and have had a long track record of loans in the past. Don’t worry, though: getting a loan isn’t impossible, even if you’re not making much. Here’s what you need to know.
You do Have Borrowing Power
Even if you’re living on a small income, you have plenty of borrowing power to draw on. While salary is an essential factor as you seek to qualify for a loan, it’s not all lenders look at. They’ll also consider your payment history and credit score, for example. If these things aren’t as strong as they could be, go above and beyond to improve them in the coming months. Decreasing your debt load will also go a long way to make you a more attractive borrower.
Is There a Minimum Required Income for Lenders?
Wondering if there’s a set minimum annual income for taking out a loan? The answer is no. Instead of looking at a one-size-fits-all number, lenders are much more likely to consider the following factors:
- The size of the loan requested. If the amount of the loan you’re asking to take out is much greater than your annual income, you’re not likely to be approved. If the loan is small, however, a lender probably won’t mind that you don’t make much each year.
- The history of your payments. If you’ve missed loan payments in the past, you’re going to have a more difficult time getting a new loan. In fact, payment history is a larger and more heavily weighted factor than your income. If you’re currently delinquent on any payments, bring them current before you seek a new loan.
- Your credit score. While there’s not necessarily a minimum income requirement, there is something approximating a minimum credit score. As a general rule, lenders will only approve people with credit scores between 580 and 600 for a loan. That’s about as low as the score can go without risking approval, although that number shifts slightly from lender to lender.
- Your monthly expenses. Your monthly expense total looks at all your fixed costs each month. This includes your rent or mortgage payment, bills, other debt payments, and anything else you’ve got to pay. As a general rule, lenders won’t make loans if the payment would push your monthly expenses up to or above 40% of your monthly income.
Getting the Loan
Now that you know what lenders are looking at, you can go out and flex your borrowing power. Remember, you can get a loan even if you don’t make millions each year!