Know How Your Employment Status Affects Your Personal Loan Eligibility
Millions of people take out personal loans each year. The total amount loaned is frequently in the tens of billions of dollars. If you are one of the countless people considering personal loans to help mitigate or consolidate debt, you may not know how your employment factors into your eligibility.
While everyone knows that employment is important when qualifying for a loan, many people don’t know just how important it is, why, and if there is any way around it. We’re going to cover everything you need to know about employment status, and how it affects eligibility for personal loans.
Income and DTI are Paramount
When you take a loan out, it’s pretty commonly understood that the entity loaning you the funds wants them back at some point. To ensure they get paid, loan underwriters will often require minimum income levels and debt-to-income ratios before approving the loan.
To give yourself the best debt-to-income that you can, it’s important to pay off outstanding debt. Whether you use the avalanche method, snowball method, or something else entirely, minimize any debt you have and you’ll lower your debt-to-income ratio. If you can pay off several smaller accounts, the beneficial effect is often better than paying off one large account.
Your Schedule Matters
Many personal loan servicers cannot qualify anyone for a loan that works below a certain threshold of hours per week. This can make getting loans for those who need them most relatively difficult. Check with the servicer, but know that usually, working less than 30 hours per week will disqualify most applicants.
Employer Information Is Often Integral
When you apply for the loan, you will need to give the loan institution some important information about your employer. While being self-employed is the American dream in many ways, it can certainly make things difficult when applying for personal loans.
The main challenges come from the lack of official pay stubs to estimate income, often from receiving pay in non-traditional ways. Personal loans don’t necessarily exclude the self-employed, they just occasionally have to face some additional hurdles.
Employment History Weighs Heavy
You will need to show a history of working for the same employer, generally, your current one, for at least 3-6 months in most cases to be eligible for a personal loan. Lenders know that the income necessary to pay back loans most consistently comes from reliable employment.
If you have a history of bouncing from one job to another, even if you did so on good terms, you will likely find it challenging to get a personal loan.
Industry Can Affect Eligibility
In some cases, lenders may actually list entire industries as ineligible for loans. This is because some industries have been found to correlate strongly with higher rates of default on personal loans. This means investors can vote to stop lending to certain employers.
Commonly affected careers include:
- Car dealer
- Truck drivers
- Restaurant or food service management
- Some nursing fields, such as LPNs
- Nurse’s aide or assistant
An Ounce Of Prevention
While it can be frustrating to need a personal loan that can’t be issued due to insufficient wage or employment history, it is also understandable. Loan companies try to loan money to those who are most likely to pay it back, so they take measures they feel are appropriate.
If you find yourself in the occasional position of needing a personal loan, be proactive to improve your chances of approval as much as possible. Keep your employment history steady, get rid of old debt, and polish up your credit report so that you can more easily be approved.
Once you successfully pay back a personal loan and your credit is on the upswing, your eligibility for future loans will drastically improve.