When you apply for a loan, the lender comprehends your capability of paying monthly installments on time. To ensure a smooth verification process and approval, you need a stable income and a good credit score.
Wondering what your income needs to be to qualify for a loan? Though there’s no holy-grail amount of income that guarantees a loan, you need to meet the minimum requirements stated by the province.
This article will tell you what income you need to qualify for a loan – and how to go about it. IF you are looking for a line of credit, this article will show you the way.
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Worried About Getting Loans On A Low Income? Here’s How You Can Qualify For A Loan
Getting loans on a low income can be a major hindrance, but shopping around can stimulate your options. You need to go out and explore multiple lenders to understand the minimum criteria.
There are countless lenders out there, and all of them might not have rigid standards to meet. Here are some standard requirements to avail of a loan:
- Should be between 21 years to 60 years of age
- 3% to 46.96% interest rates (depending on the lender and your credit history)
- Loan availability from $1000 to $100000
- A minimum credit score of 640 to 750
- Minimum income of $15000 to $20000 per annum
Types Of Loan
There are quite some loan options, from personal loans to student loans and mortgage loans..
Personal Loans
You need at least $15000 to $20000 in income every year to avail any personal loan.
Secured Loans
Individuals with poor credit scores or no credit history can offer personal property as collateral like a car or a house.
If your income is low, you need to complete paperwork with the lender to become a lienholder on your asset. Your interest rates also go down when you apply for a secured loan.
Unsecured Loans
For individuals with good credit scores, no collateral is required. However, you must show your bank stable income proof or business proof.
The interest rates are generally higher than secured loans since the risk of non-payment is higher in unsecured loans.
Student Loans
Student loans help students pay for their post-secondary education, including tuition fees, books and supplies, and housing costs.
You will have to produce an income statement of your family, your province, your tuition fees and living expenses.
Mortgage Loans
Usually meant for larger purposes, mortgage loans have a longer maturity period, usually 10 to 25 years. Individuals who are salaried or into a stable business can only avail themselves.
You need to have a good credit report and score and a maximum 39% GDS ratio and 44% TDS ratio. Besides, you also need to provide proof of your income (last 1 to 2 years), your asset proof and disclose your level of debt.
Short Term Loans
Usually, with a term of 12 months to 24 months, such loans can be used to fulfill short-term goals. The money is directly deposited to your bank as a lump sum and can be repaid in easy monthly installments.
You need to have an active bank account and show income stability for at least three months.
Apart from that, you’ll have to show income proofs with bank statements; salary slips to confirm the DTI ratio. You may also need to provide collateral or get cosigners or guarantors to secure your loan.
Cash Loans & Advances
Such loans are comparatively easy to obtain compared to other loan types. However, the loan amounts are pretty less – a few hundred dollars. Moreover, the interest you’re paying is high and might affect your credit score if not paid on time.
You need to have good credit history along with a credit score above 700 to avail such loans. However, no collateral is required.
Factors To Consider Before Qualifying For A Loan
There are a few things you need to consider before getting a loan:
Loan Repayment Tenure
Before you avail of a loan, the tenure needs to be considered. Remember, every type of loan has different repayment tenures. While some lenders are lenient with the repayment periods, some have stringent tenures.
However, the longer the loan tenure, the more repayment cost will be – that’s how compounding works.
Tax Benefits
Unlike education loans or home loans, you cannot avail tax benefits on loans against property. For loans against property, you’ll have to pay the tax as a percentage overlay on your monthly installments.
Rate Of Interest
The rate of interest you will be paying to repay your loan varies on certain factors – credit score, loan amount, tenure, and more.
In case your lender is charging you a higher rate of interest (15% to 25% or more), you must consider other options.
Steps To Qualify For A Loan
Here is how you can qualify for a loan:
Consider Debt To Income Ratio
Though your lenders would do their due diligence to consider your DTI ratio, you can do the math early to be sure. You can determine the DTI ratio by adding up your fixed monthly payments. The lower your DTI ratio, the better your scope is. A 36% DTI ratio is considered healthy in any Canadian province.
Check Your Credit Score
Irrespective of your loan type, credit score plays a key role. The minimum requirement is a fair score between 580 to 669; the more, the merrier. If you fail to meet the minimum requirements, you might not get the loan or have to settle for a higher interest rate.
Choose The Loan Type
Once you know your creditworthiness, it’s time to determine which loan type is best suited for your situation. For example, if you want to take a personal loan, a student loan lender might not help. Choose your ideal lender when you know the loan type you want to use.
Shop Around For The Best Interest Rates
Don’t settle for the first option because different lenders offer different interest rates. For example, if you are getting a personal loan at a 36% interest rate, you may get it at a 3% to 5% discount if you wait and explore.
Provide Necessary Documents
In the last step, you’ll have to provide all the necessary documents to your lenders. It includes PAN numbers, salary slips, residential proofs, and more. While some lenders are flexible and settle with less documentation, some might ask for a driver’s license, W-2s, and whatnot.
Endnote
No lender would like to deal with an individual who has a lower income along with a bad credit score. However, with a bit of diligence, you can increase your chances.
You need to improve your credit score, lower your DTI ratio, and, if possible, try to make more significant down payments. Once your credit score is good to go, you would benefit from lower interest rates and easy approvals.
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