How Much Income Do You Need for a Personal Loan?

How income limits the amount

A lender does not ask "how much do you earn?" out of curiosity. It divides your monthly debt payments, the new loan included, by your gross monthly income: the debt-to-income ratio. Each lender sets its own limit. The income side of that fraction is the one you control least in the short run, so it decides how far any amount can go.

Two things follow. First, the figure is gross: pay before tax and deductions, not what lands in your account. Second, the lender has to be able to verify it. Income you cannot document usually counts for nothing, however real it is.

Which income counts

What lenders may not do with your income

The Equal Credit Opportunity Act and its Regulation B set rules for how a lender treats income (12 CFR 1002.6(b)). A lender may not discount or exclude your income because it comes from part-time work, an annuity, a pension or other retirement benefits. It may not hold against you that income comes from a public assistance program; in a judgmental review it may consider that fact only to assess a relevant part of creditworthiness, such as how long the income is likely to continue. What a lender may weigh, for any source, is the amount and how likely it is to continue.

Income needed for each $10,000

The table shows the gross annual income that the payment on $10,000 needs on its own at a 36% debt-to-income limit: payment ÷ 0.36, times 12. These are worked examples with a fixed rate, equal monthly payments and no fees, not offers. Double the amount and the income doubles with it.

Few people borrow with no other debts, and those debts weigh more than the loan. Each $100 a month you already pay needs $277.78 of monthly income at a 36% limit, about $3,333 a year.

A worked example: $15,000 at 18% APR over 48 months costs $440.62 a month. Add $1,300 of rent and a $350 car payment and the debts total $2,090.62. At a 36% limit that needs $5,807.28 of gross monthly income, about $69,687 a year. A lender that allows 40% would need about $62,719; one that allows 45%, about $55,750. Run your own figures in the borrowing room calculator.

Documents to have ready

• Employees: recent pay stubs and last year's W-2; some lenders verify employment directly or read your bank deposits.
• Self-employed: one or two years of federal tax returns with their business schedules, 1099 forms and recent bank statements.
• Benefits and pensions: the award or benefit letter for the current year and the deposits that match it.
• Alimony or child support you choose to list: the court order or agreement and proof of recent payments.
• Other income: leases for rental income, statements for investment income.

Match the income you type into an application to what your documents show. A rounded-up figure that the paperwork does not support can turn an approval into a smaller offer or a denial late in the process.

If your income does not cover the amount

1. 1 Borrow less: price the need again with how much to borrow.
2. 2 Lengthen the term to lower the payment, knowing it adds interest; the 60-month loan page shows the trade.
3. 3 Pay down or pay off a small debt first: lowering the other side of the ratio works as well as earning more. Debt-to-income and loan size shows which payments count.
4. 4 Apply with a co-borrower whose income is added to yours; Lendmira explains cosigners and co-borrowers.

A larger income does not make a larger loan wise. The lender's limit is a ceiling; your monthly budget after tax is the test that matters to you.

Questions people ask