What Are Loans Based on Income?

What Are Loans Based on Income?

There are many different types of loans. And when you need money quickly, it can be challenging to assess the pros and cons of different options. It can also be challenging to assess which loans are right for you if you’re still building credit.

Many loans require a credit check, and your credit score may affect the interest rate and terms you are able to qualify for when borrowing a loan. But what if you have no credit or bad credit? There may be other loans available outside of personal loans from banks. Income-based loans, which evaluate your income as a primary deciding factor, may be an option to consider. These loans could give you the cash you need but also have some potential drawbacks. Here is what to know about loans based on income.

How Does a Loan Based on Income Work?

Personal loans can be used to pay for nearly any type of expense. In addition to the flexibility for use of funds, other advantages of personal loans include convenience, lower rates than credit cards (typically), and quick turnaround times. Generally, lenders will evaluate an applicant’s credit history in order to make lending decisions.

Loans based on income, also known as income-based loans, work differently. Instead of focusing on an applicant’s credit score and history, these loans take your income into account. While “income-based loans” and “loans based on income” are terms you may see when researching personal loans, these are primarily marketing terms. The companies who use these may be using income as a method of evaluating loan applications, making them an option for borrowers looking for no credit check loans.

With a loan based on income, the lender may ask for proof of income, such as a W-2, paystub, tax returns, and/or recent bank statements. You’ll also need to share personal information on the loan application, such as your address and social security number. But unlike a traditional personal loan, the evaluation may not include a credit check.

Because the lender isn’t considering credit, the terms of the loan may be different from a traditional personal loan. For example, the loan may have a high interest rate or require collateral. Collateral is when you, as a borrower, put up an item of value to back the loan in case you are unable to pay back the loan. This might be something like your car or even your house.

Whether a loan requires collateral determines whether it is a secured or unsecured loan. Both options may be part of an income-based personal loan.

Recommended: Using Collateral on a Personal Loan

Secured Loan

A secured loan is a loan that requires the borrower to put up collateral and can be an option for borrowers with poor or thin credit. These loans can take several forms:

Pawn loan. A pawnshop loan is where you put an item of value up as collateral, such as jewelry or electronics, in exchange for the loan. In addition to collateral, you’ll also have to pay the loan back with interest. If you are unable to do so, the pawn shop will then own the collateral and may sell it. Pawn loans can also be an option for those looking for no bank account loans.

Title loan. If you own your vehicle, you may be able to take out a loan for the valued amount of your car. In a title loan, you physically keep possession of your car, but the lender can hold the title of your vehicle. Interest rates for this type of loan can be very high — up to an APR equivalent of 300% — and can be risky. After all, if your income depends on your ability to drive to work, losing ownership of your car may mean that your ability to work is in jeopardy, too.

Home equity loan. If you own your home, you can borrow against the value of your home’s equity through different types of loans, including cash-out refinance, a home equity line of credit (HELOC) or a fixed-rate home equity loan. These types of loans can require a relatively lengthy approval process, and may not be appropriate if you need cash quickly, or if you need a relatively small loan.

Unsecured Loan

An unsecured loan does not require collateral. For this reason, this type of loan poses more risk to the lender. If you do not pay back the loan, the process to get back their money can take a long time, involve the legal system, and may be fruitless if you declare bankruptcy.

That’s why lenders may require a more extensive application, including performing a credit check on the potential borrower. If you, as a borrower, know that your credit history isn’t great or you are still building your credit, you may have fewer unsecured personal loan options.

Still, there may be some available. Knowing the pros and cons, reading the fine print, and having a clear plan for how to pay back the loan can be important in assessing which one is the right one for you.

Payday Loans

One type of loan that might be accessible for people with no or bad credit is a payday loan. This is usually a short-term, high-cost loan that is due on your next payday. Typically, payday loans are relatively small (generally under $500) and some states may have a limit as to how much people can borrow.

Payday loans are, like their name, due on your next payday or when you next get income. A payday loan typically has a relatively high interest rate may have fees as well. To ensure your loan is paid back, the lender may ask for a postdated check or money order. One of the problems with a payday loan is that if you can’t repay it on time and have to renew the loan, you can end up falling into the payday loan cycle. This can cause debt to snowball, and cost a lot of money in the long run.

Alternatives to Loans Based on Income

If you need money quickly, you may have some other options available. These could include:

Using a credit card or credit line. If you have access to credit, utilizing a credit card or credit line could help you through a financial rough patch. But because interest rates can be high, having a plan to pay back what you borrow or taking advantage of a card with a low APR can be a good strategy.

Borrowing from friends or family. Sometimes a loan from a friend or family member can be more flexible than borrowing from a lender. It can be a good idea to consider drafting an agreement, even if it’s relatively informal, regarding expectations, any interest agreements, and other conditions.

Selling things. Selling things you no longer need may help you raise cash quickly. Using local online marketplaces can be a quick way to unload things you’re not using and raise money.

Starting a side hustle. While it can take time to onboard onto a new job, applying for part-time jobs could be a potential long-term strategy to access more money. In the short-term, informal jobs such as babysitting, tutoring, or other work could help you raise the cash you need.

The Takeaway

Finding yourself in a financial lurch can be scary. But taking the time to weigh pros and cons of options may be helpful in choosing a sustainable path forward. Understanding the benefits and risks of loans based on income can help you assess whether this type of loan makes sense for your current financial circumstances.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.


Photo credit: iStock/Khosrork

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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Applying for a Loan Online vs. In-Person: Comparing the Differences & Similarities

Applying for a Loan Online vs In Person: Comparing the Differences & Similarities

As you’re shopping around for the best terms and rates on a personal loan, you may wonder: Is it better to apply for a loan online or in person? While both options can lead you to securing a personal loan, the process and even the fees and rates can differ for an online loan application vs. in-person.

If you need help deciding which option to go with, this guide can help you figure out whether you should look at applying for a loan online vs. in person.

What Is an Online Personal Loan?

An online personal loan is a type of installment loan that you borrow and agree to pay back with interest. Personal loans are usually unsecured loans, which means you don’t have to put up collateral (such as a house) to be able to get the loan. Since unsecured loans pose more risk to lenders, interest rates tend to be higher compared to secured loans.

Personal loans are known for being flexible, and there are several ways to use a personal loan. You can use one to consolidate credit card debt or pay for home renovations, medical expenses, a vacation, a large purchase, or just about any other personal expense.

An online personal loan acts like a regular personal loan with the only difference being that the lender has a presence online. Online loans can come from traditional banks, or they may come from lenders who only operate online.

What Is an In-Person Personal Loan?

Getting an in-person personal loan allows you to obtain a personal loan with the assistance of a bank or credit union employee. They can help you through the process. From collecting documents to submitting your loan application, there’s a lot of attention that an employee can give you when you apply for one of the different types of personal loans.

Applying for a Loan Online vs In-Person

Applying for an online personal loan has never been easier or faster. Technology automates much of the process so you can know what the lender’s decision is fairly quickly — often on the same day.

Beyond the ease with which you can apply for a loan online or in person, there are a number of other factors you’ll want to consider.

Fees

Fees and rates can differ from loan to loan. Shopping around for rates and fees is going to help you compare personal loan interest rates and find the lowest personal loan origination fees and APRs out there.

While you might see low rates for online lenders, you may also be able to negotiate a low rate with the bank representative. Sometimes, having an existing relationship with the bank can help you get a lower interest rate, or even help with getting approved for a personal loan.

Approval Process

When you get to the approval process, an online loan application vs. in-person is going to be faster. This is because technology automates much of the process for approval when you apply online. Sometimes, you can receive a decision — or even funding — on the same day.

With an in-person application, you can expect to wait several days or even longer for loan approval and disbursement. Plus, not as many banks and credit unions allow you to prequalify like online lenders often do, which can give you an idea of your odds of approval and your potential rate without impacting your credit score.

Convenience

If you’re the type that can quickly fill out information online and upload documents with ease, you may just want to apply online. However, if you would prefer some help through the process of applying for a personal loan, you may consider finding a physical location of the bank or credit union instead.

Security

When it comes to security, applying online for a personal loan is as safe as any other online transaction. Yet, that might not make you feel comfortable enough to do it. If you’re not confident in transmitting personal information over the web, you might consider visiting a branch location to apply for a personal loan.

Personalized Support

Support can be seen as more attentive at an in-person branch. You can have your issues heard and the bank employee can explain things like the personal loan principal and the personal loan maturity date so they make sense.

Online support can be hit or miss, depending on the company. This is one area where an in-person experience might make you happier.

Which Is Better: Applying for a Personal Loan Online or In-Person?

If you value personalized attention, you might prefer to apply for a personal loan in person. On the other hand, if you’re tech-savvy and appreciate the speed and savings an online lender can offer, you may prefer to apply for a personal loan online instead.

At the end of the day, you’ll see advantages with each option whether you choose to apply for a loan online or in person. What’s really important is to find a loan with the most competitive terms and the lowest rate.

The Takeaway

Applying online for a personal loan may allow for a faster approval and funding process, plus you can complete the entirety of the application from the comfort of your home. If you’d rather have someone there to walk you through the process, and you have a longstanding relationship with your bank or credit union that you think could favorably impact the terms you receive, then applying in-person might be better. Ultimately, it comes down to personal preference — and where you can get the best offer for a loan.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.


SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

Is applying for a loan online safer than applying for a loan in person?

Applying for a loan online is considered as safe as applying for a loan in person. If you’re worried about sharing your personal information online, you can go into a credit union or bank branch and apply in person.

Is there a difference in cost when applying for a loan online vs in person?

Whether you’re applying for a loan online or in person, it’s a good idea to shop around for the best rates and terms. Online lenders may have lower overhead costs and be able to pass those savings on to customers. On the other hand, banks where you apply in person may be able to offer rate or fee discounts for existing customers.

Is it quicker to apply for a loan online or in person?

In most situations, it is quicker to apply for a loan online than in person. Processing is generally faster, too.


Photo credit: iStock/fizkes

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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What Hard Money Personal Loans Are & How They Work

What Hard Money Personal Loans Are & How They Work

You want to flip a house, but you don’t have enough money for a down payment — and your credit isn’t where it needs to be for a personal loan. Or, maybe you’re a small business owner who wants to own a piece of commercial real estate. People who are investing in real estate beyond their primary residence may consider a hard money loan as an option, especially if a traditional mortgage isn’t.

A hard money loan is a short-term loan commonly used by investors, such as house flippers or developers who renovate properties to sell. The loan typically uses the property as collateral. Hard money loans are usually funded by private lenders, individuals, or investor groups, rather than banks.

A hard money loan may make sense on paper, but because it typically has a shorter term than other types of loans and interest rates can be high, paying back the loan can be challenging. Defaulting on a hard money loan could mean losing the property.

What Is a Hard Money Personal Loan?

A hard money personal loan is a type of personal loan that uses collateral. While a mortgage is also a type of loan that uses property as collateral, a hard money loan is very different.

First of all, a hard money loan doesn’t come from a bank. It comes from a private lender, which may be a company or an individual. The loan will likely have higher interest rates and a shorter payback period than a traditional mortgage.

It can also be a much shorter process to be approved for a hard money loan. While a mortgage may take weeks for approval, it’s not atypical to have cash in hand within a few days of a hard money loan application.

A hard money loan also may be more lenient in terms of credit scores or assets than a traditional loan. This can be beneficial for people who are wanting to flip a house or buy an additional piece of property, who may not have enough assets on paper to be approved for a traditional mortgage, or who need a larger down payment than they have.

How Do Hard Money Personal Loans Work?

Hard money personal loans are often advertised to — and used as a tool for — house flippers, but other people may pursue a hard money personal loan as well.

Let’s say someone wants to buy a house to flip, or a piece of land to use as a rental property. They may still be building their credit, or they may not have enough money for a down payment. They may have been turned down for a mortgage, or they may not want to apply for a mortgage, knowing that it’s a time-intensive process and their finances might not be as strong on paper as they know the bank would like.

In this case, the person might turn to a hard money personal loan. Individuals, groups of investors, or private companies may specialize in offering hard money loans. Terms vary but are often less than one year, compared to 20 or more years for a mortgage. But the one constant: If you can’t pay back the loan, then you lose the collateral, which would be the property.

Other things to be aware of regarding a hard money personal loan: Interest rates may be high and the loan term is much shorter than a mortgage. This comes with a fair amount of risk.

Pros and Cons of Hard Money Personal Loans

As with any personal loan, it’s important to consider the pros and cons of the loan. It can also be a good idea to consider what-ifs, and how you might pay back the money if the original plan doesn’t work. Here, some pros and cons to think about before applying for a hard money personal loan.

Pros of a hard money personal loan

Cons of a hard money personal loan

Receive money fast Short loan payback period
Flexibility in terms of credit score and overall financial picture High interest rates
Can use hard money for whatever you need the money for Possibility of losing property if you cannot fulfill the terms of the loan

Personal Loans Versus Hard Money Loans

The primary difference between an unsecured personal loan and a hard money loan is that a hard money loan is secured. Both are personal loans, but using collateral for a personal loan means the loan is secured.

Collateral can be anything of value. But in the case of a hard money loan, it’s in the form of property. A personal loan typically does not require collateral. If you were unable to pay back a personal loan, the lender could not take away your house, for example. Both types of personal loans have specific terms and conditions, and both can provide cash relatively quickly. However, many personal loans are backed by a bank or other financial institution.

Hard money loans

Personal loans

Backed by a private individual or company Backed by a bank or other financial institution
Credit checks and financial picture play a limited role in approval Credit check plays a large role in approval
Provides cash Provides cash

Is a Hard Money Personal Loan Right For You?

Hard money personal loans may be an option for certain financial needs. But, as with any personal loan, it’s important to weigh the pros and cons, and consider what-ifs. Questions to ask may include:

•   What other avenues can I follow to raise the money I need?

•   What happens if I don’t pursue this loan?

•   If I do get this loan and plan to do a specific thing with it, what happens if that specific thing doesn’t happen the way I anticipated?

•   Can I afford this loan, including interest?

•   Could I afford this loan if my financial circumstances changed?

These questions can help you assess worst-case scenarios. You also may want to ask your potential lender any questions you have as well.

Recommended: Personal Loan Alternatives and Options

Hard Money Personal Loan Alternatives

There are potential alternatives to hard money personal loans. Some may require collateral, and others, like a personal loan, may not. Each comes with pros and cons. Your financial situation may also determine which loans you might be eligible for. If you’re building your credit, you may not have access to certain loans.

Credit Cards

If you’re purchasing land or property, you likely need cash. But for other purchases, using a credit card could be an option. If you don’t need a lump sum of money, using the line of credit that a credit card offers may work well for making periodic purchases.

However, credit cards may have high, variable interest rates. Plus, the more of your available credit you use, the higher your credit utilization ratio, which could impact your credit score.

Recommended: What Is A Personal Line of Credit & How Do You Get One?

Personal Loans

Can you buy land with a personal loan? You could. Generally, once you’re approved for a personal loan, you receive money in your account and can then use it for virtually any purpose. Some people use personal loans to pay for renovations or other home improvement projects.

But it could be challenging to get mortgage approval if you were planning on using a personal loan for a down payment, for example. A personal loan may affect mortgage eligibility.

Recommended: Do Personal Loans Affect Getting a Mortgage?

HELOC

A home equity line of credit (HELOC) is a type of revolving debt. For example, if you apply for a HELOC and are approved for $10,000, you can draw up to $10,000. Once that money is paid back, you can draw from it again for the set period of time defined in the terms of the loan.

A HELOC is a popular option for people who are doing home improvement projects. They may not need a lump sum of cash but may have ongoing expenses. Generally, interest rates on a HELOC are variable, not fixed.

Since a HELOC is a loan secured by the borrower’s home, there is a risk of losing the home if the loan is not repaid.

Recommended: How Do Home Equity Lines of Credit Work?

The Takeaway

For some people, hard money personal loans can allow them to realize their real estate goals. But hard money loans typically have high interest rates and short payback periods, which can make them risky. It can be a good idea to carefully weigh the pros and cons of a hard money loan.

A SoFi Personal Loan may be an alternative to consider. Since unsecured personal loans from SoFi do not require collateral, they could be a good option for those just entering the real estate market. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.


Photo credit: iStock/JLco – Julia Amaral

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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Getting a $3,000 Personal Loan

Getting a $3,000 Personal Loan

The funds from a personal loan can be used for anything from paying off high-interest credit card debt to buying a new spinning bike. But how hard is it to qualify for a $3,000 personal loan? And what if you have bad credit?

Online lenders tend to cater more to borrowers with bad credit. They may also charge higher interest rates and financing fees because a borrower with bad credit is considered higher risk.

Read on to find out how to get a personal loan, what credit score you need for a personal loan, and where to go to get a loan if you have bad credit.

Can I Get a $3,000 Personal Loan with Bad Credit?

A personal loan is money borrowed from a bank, credit union, or online lender. Loan amounts range from $1,000 to $50,000, and the principal is paid back with interest in fixed monthly payments, typically over several months to seven years. Personal loans are flexible, meaning they can be used for virtually any purpose, from a cross-country move to home improvements.

Getting approved for a personal loan that is $3,000 with bad credit may mean you have to jump through a few hoops to qualify. What is bad credit? According to FICO®, someone with a score of 580 or below is considered to have “poor” credit (their lowest rating tier) and poses a high risk to a lender.

When calculating an individual’s credit score, FICO and other rating agencies will look at a variety of factors, including whether you pay bills on time, how long you have held credit lines or loans, how much of your available credit you are currently using, how often lenders have pulled your credit report, and your history of bankruptcy or foreclosure.

A low credit score indicates that you could be at a higher risk of defaulting on a loan. To compensate for that risk, a lender may charge you a higher interest rate for a loan or credit card, or you may have to put down a deposit or provide collateral.

What Is the Typical Credit Score Required for a $3,000 Personal Loan?

While some personal loan lenders allow you to apply with a very low credit score, many require a minimum credit score of 660 or 700 to be considered for a $3,000 personal loan. Generally, the higher your credit score, the less interest you will pay.

Benefits of a $3,000 Personal Loan

The benefits of a $3,000 personal loan include flexibility and predictability. The loan can be used for pretty much anything you need, and the payments will be the same each month until the loan is paid off.

Interest Rates and Flexible Terms

The interest rate for a personal loan will typically be fixed for the term of the loan, and the repayment terms are flexible, ranging between a few months to seven (or more) years. Personal loans typically have a lower interest rate than a credit card, and the rates can be much better if you have excellent credit. You might also be able to borrow more using a personal loan versus a credit card.

No Collateral Required

An unsecured personal loan does not require any collateral. Some loans require the borrower to use their car or home as an asset to guarantee the loan. The interest rate may be a little higher for an unsecured loan than it would be for a secured loan because the lender assumes more risk, but you won’t risk your car or home if you default.

Recommended: Secured vs. Unsecured Personal Loans

Fixed Monthly Payments

A personal loan will have fixed monthly payments for the life of the loan, which makes budgeting for bills easier.

Cons of a $3,000 Personal Loan

A personal loan might not be the best option depending on your situation and the loan’s purpose. Here are some of the downsides to a personal loan.

Debt Accumulation

Many people use personal loans to pay off credit card debt because the interest paid on a credit card is generally more than the interest paid on a personal loan. However, this can be a double-edged sword if clearing your credit card balances tempts you to use those cards again and rack up even more debt.

Origination Fees and Penalties

Personal loans may come with significant fees and penalties that can drive up the cost of borrowing. Though some lenders don’t charge origination fees, these fees are common and can run as high as 10% of the loan amount. If you decide to pay off the balance before the term ends, you may have to pay a penalty.

Interest Rates May Be Higher Than Other Options

This is particularly true for people who have a low credit score. In that case, a credit card might charge a lower rate than a personal loan.

If you have equity in your home, another option is a home equity line of credit (HELOC). Alternatively, a balance transfer credit card might charge a lower interest rate than you’re currently paying on your credit card balance.

Where Can I Get a $3,000 Personal Loan?

You can get a personal loan from online lenders, commercial banks, and credit unions. Online lenders offer a streamlined application process and loans are often funded within two days. You can also typically get prequalified and see your potential loan terms before you apply. An online lender might do a soft credit check to prequalify you for a loan, but your credit rating will not be affected.

Credit unions may offer lower interest rates and more flexible terms for members. Federally chartered credit unions cap annual percentage rates (APRs) at 18%, so borrowers with imperfect credit may receive lower rates than they would elsewhere. A history with a credit union might boost your eligibility.

A bank will typically require good credit to qualify for a personal loan. You may also need an account with the bank. Account holders are likely to qualify for the lowest interest rates and bigger loans. You may have to visit a branch and complete the application in person.

How to Apply for a $3,000 Personal Loan

1.    Check your credit reports. You may find errors on your reports that you can fix to boost your eligibility for lower-rate loans.

2.    Compare the terms and conditions offered by lenders. A personal loan calculator can help you determine what your payments will be.

3.    Prequalify if you can, because it won’t affect your credit score and will help you with your comparison.

4.    Consider using your car or other collateral to get a better rate with a secured loan.

5.    Use a cosigner (with good credit) to get a better rate. The cosigner’s credit rating is considered along with your own, but they must agree to pay the loan if you cannot.

6.    Gather the documents you need and apply to the best lender. Examples of documents you may be asked to provide are W-2s, paystubs, and financial statements.

$5,000 Personal Loan

Here’s an example of what your costs would be if you took out a $5,000 loan with a three year term at various APRs:

APR

Monthly Payment

Total Interest Cost

8% $157 $640.55
12% $166 $978.58
16% $176 $1,328.27

$10,000 Personal Loan

The monthly payment on a personal loan of $10,000 with an 12% APR and a three-year term would be $332.13. The loan’s total interest cost by the end of the term would be $1,957.15.

If you were to opt for the same loan amount and rate but a five-year (rather than three-year) term, the monthly payment would be $222.44 and total interest cost would be $3,346.67.

The Takeaway

A personal loan is a way to get flexible financing quickly. A personal loan can be used for nearly any purpose, and the term of the loan can range from a few months to seven or more years. Banks, credit unions, and online lenders offer these loans at varying interest rates.

Personal loans are popular for people who want to consolidate their debt or pay off credit cards that charge a higher interest rate. The requirements for a $3,000 personal loan depend on the lender, but a good credit score will typically get you a better rate.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

What credit score is needed for a $3,000 personal loan?

A score of at least 610 to 640 is typically required to qualify for an unsecured personal loan. To qualify for a lender’s lowest interest rate, however, borrowers generally need a score of at least 800.

Is it possible to get a $3,000 loan with bad credit?

Some lenders, particularly online lenders, will extend personal loans to people with bad credit. In fact, some online lenders will specifically advertise personal loans for borrowers with bad credit. However, the terms may include high interest rates and fees.

What’s the monthly payment on a $3,000 personal loan?

The monthly payment on a $3,000 personal loan will depend on the loan term and the interest rate. For example, the monthly payment on a two-year $3,000 loan with an annual percentage rate (APR) of 12% would be $141.22.The monthly payment on a $3,000 loan with a six-year term and an APR of 12% would be $58.65.


Photo credit: iStock/nortonrsx

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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woman calculating expenses

Getting a Personal Loan While Self-Employed: How to Apply

One downside of leaving a traditional 9-to-5 for a life of self-employment is navigating your personal finances as a sole proprietor. From invoicing to estimating taxes, it’s all on you — because you’re the boss now.

Qualifying for a personal loan while self-employed could also present some challenges. Self-employed individuals may have a need for a personal loan, but may find it difficult to produce traditional documentation, like W-2s or pay stubs, used to verify income. But, that doesn’t necessarily mean you’re out of luck. Here’s a look at some ways to get a personal loan when you’re self-employed.

How to Get a Personal Loan if You’re Self-Employed

A personal loan is a type of installment loan that can be used for nearly any personal expense, including home improvements, a work sabbatical, or consolidating your credit card debt. If you’re considering making a big purchase, like buying an engagement ring, a personal loan can be an alternative to using a credit card, if you don’t have the means to pay the balance off right away.

Personal loans are typically unsecured, meaning a lender won’t require collateral. However, they can also be secured, usually by the asset purchased with the loan. Unsecured loans are usually approved based on the financial standing of the borrower.

In addition to looking at an applicant’s credit history, lenders will also typically consider a potential borrower’s income when deciding whether to not o approve a loan and, if so, what the rates and terms will be. Those who are self-employed may find it more difficult to show proof of income, especially if their income fluctuates from month to month and year to year.

Self-Employed Loan Requirements

Loan requirements for self-employed individuals will be similar to the typical loan requirements for any borrower as determined by the lender. In addition to evaluating factors like the applicant’s credit score, many lenders will require proof of income.

Traditional documentation used to verify income includes pay stubs and W-2s. However, self-employed people may have some difficulty producing these documents, because they often aren’t W-2 employees. It is possible for self-employed individuals to show proof of income, but it may require a little more legwork.

In general, lenders are looking for borrowers who have income stability and it can help if the borrower has been working in a single industry for at least two years. A shorter employment history could indicate that you are a borrowing risk.

Recommended: Typical Personal Loan Requirements Needed for Approval

Showing Proof of Income When Self Employed

Those who are self-employed have a couple of options for showing a lender they have sufficient and reliable income. Here are a few options that self-employed individuals could provide as documentation to prove their income.

Tax statements: Self-employed individuals can use their tax returns from the prior two or three years to offer proof of income. These forms include your wages and taxes for those tax years. Lenders often view tax documents as a reliable source of income proof because they are legal documents.

Bank statements: Bank statements could be used if there is a regular history of deposits that illustrate consistent income.

Profit and loss statement: If you own your own business, this document provides an overview of your costs, expenses, and revenue.

Court-ordered agreements: These may include things like alimony or child support.

Keep in mind that each lender will likely have their own application requirements, so be sure to read those too. Contact the individual lender if you have specific questions on the types of documentation they’ll accept.

Consider Having a Cosigner

In the event that you are still struggling to gain approval for a personal loan with your self-employed proof of income, one option is to consider adding a cosigner. A cosigner is someone who agrees to pay back the loan should you, the primary borrower, have any trouble making payments.

A cosigner can be a close friend or family member, ideally one who has a strong credit history who will strengthen your loan application.

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Why It’s Difficult for the Self-Employed to Get a Personal Loan

It can be more challenging for self-employed individuals to provide proof of income to lenders, which can make it more challenging for them to get approved for a personal loan. But it’s important to note that each loan application is unique, and employment status is just one consideration.

For example, a self-employed individual who has a stellar credit history and who has been self-employed for a few years may be in a better position to apply for a personal loan than someone who has just transitioned into managing their own business.

The Income Challenge

Proving consistent and stable income is the biggest challenge for self-employed individuals. Because you may not be guaranteed the same payment each pay period, lenders may request specific documentation in order to verify the fact that you have enough cash coming in to make payments on the loan. Some lenders may request tax returns for several years in order to verify your income.

Consistency Matters

Consistency in income is another major hurdle for the self-employed. It’s not uncommon for self-employed people to experience fluctuation in their income. While some slight fluctuation may be acceptable to a lender, for the most part they are looking for consistent payments getting deposited into your account, even better if there is an increasing trend over time.

Personal Loan Alternatives When Self-Employed

Personal loans aren’t the only option for self-employed individuals looking to borrow money to pay for expenses. Other options to consider include a credit card, cash advance, or a home equity loan.

Credit Cards With 0% APR Promotions

Credit cards can have high-interest rates, but with a 0% APR promotion, a credit card could be a great tool to pay for an upcoming expense. Just be sure to pay off the credit card before the promotional period ends and interest starts accruing.

Recommended: Average Credit Card Interest Rates

Cash Advances

A cash advance is a short-term loan generally offered by your credit card which allows you to borrow cash against your existing line of credit. Cash advances can provide an avenue for you to get quick access to cash, but there may be additional fees and a high-interest rate for borrowing. Be sure to read all the terms and conditions outlined by your credit card company before borrowing a cash advance.

Home Equity Loans or HELOCs

If you are a homeowner, you may be able to tap into the equity you’ve built in your home using a home equity loan or home equity line of credit (HELOC). A home equity loan is an installment loan where the borrower receives a lump sum payment and repays it in regular payments with interest.

A HELOC, on the other hand, is a revolving line of credit that the borrower can draw from and, once it is repaid, continue drawing from during a specified period of time.

Business Loans

Small business loans can be used to pay for business expenses. Self-employed individuals may be able to qualify for loans backed by the U.S. Small Business Administration (SBA), as well as private small business loans offered by banks, credit unions, and online lenders.

It is important to keep your personal and business expenses separate as a self-employed person. If you are using the money for a personal expense, you’ll want to avoid borrowing a business loan. Also keep in mind that many lenders don’t allow you to use personal loans for business expenses.

The Takeaway

The challenge for self-employed individuals applying for a personal loan will generally be providing proof of income. Alternatives to traditional proof of income documents include tax or bank statements.

Fortunately, many lenders understand that a full-time job isn’t the only qualifier of financial stability and will also consider factors like your credit score, education, financial history, career experience, monthly income versus expenses, and whether you have a cosigner.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

Can you get any loans if you’re self-employed with no proof of income?

It is possible to get a loan if you are self-employed. However, with zero proof of income, it may be challenging to gain approval for a loan. To improve your odds of approval, you may consider adding collateral to the loan or applying with a cosigner.

Are there any loans for self-employed people with bad credit?

While a strong credit history can help strengthen a loan application, it’s not impossible to qualify for a loan with bad credit. If you can show a consistent and stable income history, that could help improve your application. If that’s not enough, another option may be to add a cosigner.

Can self-employed freelance workers get personal loans?

Yes, self-employed freelance workers can qualify for a personal loan. Instead of providing W-2 documents to verify their income, they will need to provide alternatives such as tax documents or bank statements. Applicants who have been working in a specific industry as a freelancer for two years or more may be viewed more favorably by lenders. Those with a strong credit score and history may qualify for more competitive rates and terms.

If a self-employed freelancer is struggling to get approved for a personal loan they could consider adding a cosigner to help strengthen their application.


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Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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