Everything You Need to Know
While a low income can make it difficult to qualify for a personal loan, you may still have options. Some lenders offer low-income loans to borrowers who can meet their other requirements, usually related to credit and debt-to-income (DTI) ratio.
Online lenders and credit unions may be especially flexible when it comes to income requirements, so it’s worth shopping around to explore your loan options. Whether you’re looking for a loan to consolidate debt, cover an emergency expense, or any other purpose, a low income doesn’t have to stand in your way.
What Are Low-Income Loans?
Low-income loans are personal loans that are available to borrowers with lower-than-average incomes. There’s no specific threshold for what constitutes a low income, since each lender sets its own rules.
LendingPoint, for example, requires a minimum annual income of $35,000. Upstart, on the other hand, has a much lower requirement of $12,000 per year. Certain other lenders have no specific minimum and review many factors before making a decision on your loan application.
You can use a personal loan for almost any purpose, including debt consolidation, home improvements, and medical bills. Using personal loans for student loan debt payments is usually prohibited. You’ll typically pay a personal loan off with fixed monthly payments over a term from three to seven years.
Personal loan lenders tend to offer interest rates between 7% and 36% (not including payday loans, car title loans, etc.). However, you generally need a high income and good to excellent credit to qualify for the lowest rates. Low-income loans may come with rates on the higher end of that range.
Types of Low-Income Personal Loans
Low-income personal loans may be secured or unsecured. Secured personal loans are backed by collateral (like a car or deposit) and may be easier to qualify for than unsecured loans. However, you risk losing your asset if you fall behind on payments.
Unsecured loans don’t require collateral, so the lender more closely examines your income, credit, and debt-to-income ratio when you apply. If the lender decides you have the means to pay back your loan on time and are likely to do so, it will approve the funds.
You can also explore payday alternative loans (PALs) from credit unions. These loans tend to have flexible borrowing requirements and rates no higher than 28%. However, PALs max out at $2,000 and have terms no longer than 12 months.
Eligibility Requirements for Low-Income Personal Loans
Along with checking your income, lenders have a few other requirements for low-income loans. These include:
- Sufficient credit score. You’ll generally need fair to good credit to qualify for a personal loan (580–670 in the FICO scoring model). Some lenders may accept lower scores, but your interest rates will probably be higher.
- Low debt-to-income ratio. Lenders also want to see how much you’re already paying toward debts each month compared to your income. According to LendingClub, a marketplace that partners with a variety of lenders, most lenders want to see a DTI of 40% or lower.
- Proof of residence. You’ll likely need to provide documentation of your physical address to show that you live in an area where the lender operates. If you’re borrowing from a credit union, you’ll need to become a member.
- An active bank account. Certain lenders may want to check your bank account balance and activity; you’re also usually required to have an active bank account in your name for depositing the loan funds. If you’re using the loan to consolidate debt, some lenders can send the funds directly to your creditors on your behalf.
If you’re having trouble meeting loan eligibility requirements on your own, you might boost your chances of approval by applying with a creditworthy co-signer or co-borrower. Applying jointly could also help you access better interest rates.
How to Apply for Low-Income Personal Loans
When you’re ready to apply for a low-income loan, these are the steps you’ll need to take:
- Check your credit. First, review your credit reports and check your credit score so you know what you’re working with. If you spot any errors on your credit reports, it may be worth disputing them before you apply.
- Pre-qualify with multiple lenders. Many lenders let you pre-qualify for a loan online in minutes with no impact on your credit score. This lets you see your potential rates ahead of time. Comparing offers from multiple lenders can help you find an affordable loan.
- Compare rates, terms, and fees. As you compare offers, keep an eye on annual percentage rates (APRs), repayment terms, and any fees associated with the loan. Make sure to pick an offer with monthly payments that will work with your budget.
- Submit your application. If you find an offer you want to move forward with, your next step is completing a full application. You’ll need to provide personal and financial details, as well as any required documentation, such as pay stubs or W-2s. Make sure to list all eligible sources of income. The lender will likely run a hard credit inquiry at this point.
- Receive your funds and start repayment. Some lenders can approve your application and disburse your funds the same day you apply, whereas others take a little longer. Review your loan contract to find out when your first payment is due. Consider setting up automatic payments so you never miss a bill.
Best Low-Income Loans
|Lender||APR||Loan Amounts||Loan Terms|
No Income Verification
No Income Verification
|Best Egg (Review)
$3,500 Annual Income Required
$12,100 Annual Income Required
|6.70%–35.99%||$1,000–$50,000||36 or 60 months|
$14,400 Annual Income Required
Pros and Cons of Low-Income Loans
- Can be used for almost any purpose. Personal loans are extremely flexible and can be used for a wide variety of purposes, including home improvement, travel expenses, and debt consolidation.
- May offer repayment terms up to seven years. You might encounter repayment terms anywhere from one to seven years, allowing you to select a term with a monthly payment that works for your budget.
- May come with high interest rates. Low-income loan rates may be on the higher end of a lender’s range, which could reach 36% or beyond.
- Could have lower loan amounts. If your income is low, a lender may only approve you for a small loan amount, which may not be enough to cover your expenses.
Alternatives to Low-Income Loans
A low-income personal loan might not be the best option if it comes with a high interest rate. Here are some alternatives worth exploring:
- Payday alternative loans. As mentioned, credit unions offer PALs up to $2,000 that you can pay off over a year. Your interest rate won’t be higher than 28%.
- Credit cards. A credit card may also be an option, especially if you can qualify for one with a 0% APR introductory period. Keep in mind that interest will accrue on your balance once this promotional period ends.
- Nonprofit assistance. There may be community groups or nonprofits in your area that can offer emergency assistance, such as credit or cash advances. Temporary Assistance for Needy Families is a government program that provides assistance to families with children. Some employers also offer financial assistance if you’ve hit a rough patch.
- Cash advance app. There are several apps that will let you borrow money in advance of payday to bridge a gap in funding. Check out the fees before borrowing, though, to make sure the cash advance would be worth it.
Be wary of payday loans that don’t have any income or credit requirements. You typically need to pay these loans back on your next paycheck, and they can come with sky-high annual percentage rates (APRs) of 400% or more. If you can’t pay it back, the loan could get rolled into another payday loan, potentially trapping you in a cycle of high-interest debt.
What Are the Requirements for a Low-Income Loan?
To qualify for a low-income personal loan, you’ll need to meet the lender’s requirements for income, credit, debt-to-income ratio, and whatever else the lender examines. The lender may require a minimum annual or monthly income, as well as a certain credit score, but not always.
Most lenders look for a debt-to-income ratio (DTI) lower than 40%. You may also have to be a U.S. citizen or permanent resident, and you’ll have to live in a state where the lender operates. If you’re unable to qualify on your own, you may be able to qualify with a creditworthy co-signer.
What Are the Different Types of Low-Income Personal Loans?
There are two main types of low-income personal loans: unsecured loans and secured loans. Unsecured loans don’t require collateral, whereas secured loans must be backed up with an asset.
You might also encounter payday alternative loans (PALs) from credit unions, which have a maximum loan amount of $2,000 and a maximum repayment term of 12 months.
What Are the Interest Rates for Low-Income Personal Loans?
Personal loan interest rates typically range from around 7% to around 36%. Low-income loans are likely to come with rates on the higher end of that range. The rate you get also depends on other factors, such as your credit. In the last week of February 2023, the average rate on a personal loan was 19.67%.
What Are the Risks Associated With Low-Income Personal Loans?
There are a few risks associated with low-income personal loans. For one, low-income loans may come with lower loan amounts and higher interest rates than loans for high-income borrowers.
Second, you might have trouble paying back your loan on a low income. Missing payments could damage your credit and lead to expensive late fees.
If you’re already having trouble making ends meet, taking on additional debt could make a difficult situation even worse. Learn how to get out of a debt spiral if you’re struggling to make payments.