For a personal loan, a borrower needs to submit certain documents such as proof of identity, proof of address, proof of income, employment details, loan application forms, and photographs. On top of these, a lender will check the borrower’s credit score and the purpose of the personal loan to connect with all other dots.
In summary, with the documents and borrower’s information, the lender will justify the need for the loan and set the limit, interest rate, and credit terms according to the borrower’s creditworthiness and proof of income.
For a secured loan, a borrower will need to submit collateral documents that vary from asset to asset.
Key takeaways
- Identify proof, income proof, and other documents to justify loan purpose is the main part.
- The borrower’s credit rating would be checked before approval.
- Applicants may need additional documents depending on the loan type. For example, a gender transformation loan needs additional supporting documents.
- Bringing a co-signer will strengthen the loan application.
What are the mandatory documents for a personal loan?
The documents for a personal loan may vary on the type of lender and availability of the borrower’s information.
For example, if a borrower is already maintaining a payroll account with a bank, the same person may not need to submit employment proofs again. Because, the bank is already aware of the borrower’s current employer through the monthly or, weekly wage disbursements.
Below are the required documents you will need to submit while applying for a personal loan.
Proof of identification
Proof of identification is crucial for verifying the identity of the loan applicant. This typically includes government-issued documents that feature a photograph of the applicant.
According to a survey by the Consumer Financial Protection Bureau (CFPB), over 70% of lenders in the U.S. prefer a combination of a driver’s license and SSN card as proof of identity.
Here are some examples, exceptions, and references:
- Passport (A universally accepted identification document that includes the applicant’s photograph, full name, date of birth, and nationality.)
- A driver’s license is also widely accepted as identity proof, particularly in the United States.
- A voter ID card can work if the applicant is from countries like India or Bangladesh.
- Social Security Number (SSN) Card is also used in the U.S. as a supplementary identification document. It does not contain a photograph but is used alongside other documents.
The identity-proofing documents should not be expired or photocopied. Usually, a lender would verify the identity proof from an online portal or its machine readability.
Proof of address
When applying for a personal loan, lenders require proof of address to verify the borrower’s residence. This helps them assess stability and credibility.
Below is a detailed list of documents that can serve as proof of address:
- Utility bills such as electricity bills, water bills, or gas bills.
- The lease/rent agreement needs to be signed by both parties and notarized.
- Property tax receipts can also work as address proof if they show the borrower’s name.
- Bank statements can also verify an applicant’s address unless he/she has moved from the earlier one.
Data from Investemia.com shows that over 60% of applicants use a combination of bank statements and utility bills as their primary proof of address.
To proof the address, an applicant cannot use documents like hotel bills or temporary accommodation receipts.
For individuals living with parents, some lenders may require an additional affidavit or letter from parents confirming the residence.
If the applicant is living in company-provided housing, a letter from the employer confirming the address can be used as proof of address.
Proof of income
The applicant needs to provide the necessary documents, which show income amount, frequency, and history to provide assurance about the creditworthiness.
Self-employed individuals often face more scrutiny, requiring a combination of bank statements, ITR, and business proof documents.
A study by the Reserve Bank of India (RBI) indicated that nearly 70% of loan applications are assessed based on income verification through bank statements and ITR filings.
Here are the documents an applicant may use as proof of income:
- Bank statement, showing the last 6-12 month’s history.
- Payslips from the employer, showing monthly disbursements (needs to match with the bank statement)
- Income tax return also shows annual earnings and other costs.
- Audited financial statements that provides assurance about any organization’s income proof.
- Documents such as business registration certificates and GST certificates is essential to proof the legality of the applicant (if it is a company or small business).
Freelancers need to provide additional documents such as client contracts, invoices, or a portfolio of work to prove earning frequency and volatility.
Seasonal workers need to show proof of consistent income over a longer period. For example, a bank statement showing income from seasonal work over the last 12 months.
Workers with cash salaries need further scrutinization by the lender. Usually, a lender checks paystubs, and salary certificates and often takes the help of third-party agencies to verify the employment and earning details.
Employment details
A loan applicant needs to assure the lender about his/her employment. Usually, individuals having wages disbursed into banks do not need much verification than seasonal workers or employees with cash salaries.
Here is the list of documents you can use as your employment proof:
- Employment verification letter (A letter from your current employer confirming your employment status, job title, and salary.)
- Recent pay slips (Copies of your most recent salary slips, usually from the last 3-6 months)
- Bank statements (if monthly salary disbursement is credited to the bank account.)
For the self-employed persons, the required documents are:
- Business registration certificates (Proof of the legal registration of your business.)
- Audited financial statements (the auditor needs to be listed on the lender’s directory)
- Income tax return for the last 2 to 3 years
For any retired person, proof of pension or retirement income, such as pension statements or annuity documentation can be accepted. However, many lenders have reservations about accepting any personal loan application from retired persons due to future uncertainties.
Part-time workers might need to provide additional documentation, like a second job’s employment verification or detailed bank statements.
According to a survey by TransUnion, approximately 55% of personal loan applicants are required to provide proof of employment as part of the documentation process. The same study indicated that nearly 40% of rejections are due to inadequate or incomplete employment documentation, highlighting the importance of accurate and thorough submission of employment proof.
By ensuring you have the correct proof of employment documents, you can significantly improve your chances of personal loan approval. Always check the specific requirements of your lender to avoid any delays or rejections.
Loan application form
An applicant needs to submit the loan application form, duly signed with the correct information. The application form generally includes various sections to capture detailed information about the applicant.
Here are the typical sections and examples of what might be required:
Personal Information
- Full Name
- Date of Birth
- Marital Status
- Number of Dependents
Contact Information
- Permanent Address
- Current Address (if different from permanent)
- Phone Number
- Email Address
Employment Details
- Current Employer
- Job Title
- Employment Duration
- Employer’s Address
- Work Phone Number
- Previous Employment Details (if current employment is less than a certain period, usually 2 years)
Financial Information
- Monthly/Annual Income
- Other Sources of Income
- Monthly Expenses
- Existing Loans or Debts
- Bank Account Details
Loan Details
- Loan Amount Required
- Purpose of the Loan
- Preferred Loan Tenure
- Preferred Mode of Loan Disbursement
References
- Personal References (Name, Contact Information, Relationship)
- Professional References (Name, Contact Information, Relationship)
Declaration and Signature
- Declaration Statement (agreeing to the terms and conditions)
- Applicant’s Signature
- Date
If the applicant is married, they might need to provide their spouse’s details, including their income, which might affect the loan approval process.
For self-employed individuals, the application might require details about their business, such as nature, annual turnover, and business address.
If an applicant has multiple sources of income, they should list all sources to potentially increase the loan amount they qualify for.
While some lenders might have strict criteria about the purpose of the loan, others might be more flexible and allow loans for a wide range of personal uses.
Applicants with a less-than-perfect credit score might still be eligible if they can provide proof of sufficient income or collateral.
Photographs
A photograph is the last required document to apply for any type of personal loan. Usually, two to four passport-sized photographs you need. In the United States, Generally, 1-2 passport-sized photographs with a plain white background.
In the United Kingdom, a borrower needs to submit 2 passport-sized photographs with a light-colored background.
Some online lenders may not require physical photographs and may accept digital photos uploaded through their online application portal.
Certain lenders may waive the photograph requirement for existing customers who already have their photos on file.
However, Lenders offering pre-approved personal loans to existing customers may not ask for additional photographs if the customer’s identity is already verified.
According to data from Investemia.com, 85% of traditional lenders require physical passport-sized photographs, while only 35% of digital-first lenders ask for uploaded digital photos.
What other documents would you need for an education loan?
In addition to the regular documents, an educational loan applicant will need a few extra documents to support the loan application.
The additional documents are:
- Admission letter from the educational institution confirming the course and acceptance.
- Official fee structure provided by the institution detailing the cost of the course.
- Previous academic records, including mark sheets and certificates.
- Scorecard or results of any entrance exams taken for admission to the course (if applicable).
- Identity proof, address proof, income proof, and relationship proof of the co-applicant or guarantor (usually parents or guardians).
Does a marriage loan require anything extra?
A marriage loan is a typical personal loan, taken for a specific purpose (wedding). Apart from the regular documents, it may require some additional documents such as:
- Wedding invitation card (to verify the event)
- An estimate of the event cost (Quotes from vendors to justify the loan amount requested)
- Proof of relationship (engagement proof).
- Photographs of the couple if required by the lender.
For the marriage loan, credit score of the spouse will not be asked unless the spouse becomes the guarantor or co-signer.
Do you need additional documents for the gender transformation loan?
Gender transformation loans, like other personal loans, require standard documents, but there may be specific additional documents needed such as medical records, treatment plans, cost estimates, insurance coverage, etc.
Here are the additional documents you will need for a gender transformation loan:
- Detailed medical history and records related to the gender transformation process.
- Letters or reports from healthcare providers, including therapists and doctors, indicating the necessity of the procedure.
- A comprehensive treatment plan from the healthcare provider.
- Detailed cost estimates or quotes from the hospital or clinic where the procedures will be performed.
- Documentation of any insurance coverage or benefits that may apply to the gender transformation procedures.
- Signed consent forms for the medical procedures as required by healthcare providers.Depending on the jurisdiction, legal documents such as name change certificates or court orders may be needed.If a co-applicant or guarantor is involved, their identity proof, address proof, income proof, and relationship proof may also be required.
What other information a lender would need during a personal loan application?
In addition to the aforementioned documents, a lender would need a borrower’s credit score. A credit score is typically a number that interprets an applicant’s creditworthiness.
A credit report contains all related information of the borrower’s earlier debt, debt utilization, and payment behavior.
Usually, banks collect an applicant’s credit report from credit reporting agencies (also known as credit bureaus). Different countries have their own major credit bureaus.
In the United States, Equifax, Experian, and TransUnion are the top places to collect a credit report. These three credit bureaus are also available in the United Kingdom as well. In Australia, Equifax, Centrix, and Illion (formerly Dun & Bradstreet) are popular places to collect credit ratings.
What if the applicant cannot provide any of the documents?
Every document mentioned above is crucial for a personal loan application. In case the applicant cannot provide any documents, he needs to provide the lender’s required information by any other mean.
If the lender is not happy with the provided information, the applicants may receive a loan rejection.
However, The lender might grant conditional approval subject to the provision of the required documents within a specified timeframe.
In case of rejection, the hard inquiry made by the lender during the credit check might still appear on the applicant’s credit report, potentially impacting the borrower’s credit score.
Preparations of the loan applicant
- Pre-Check Requirements: Before applying, check the lender’s specific documentation requirements to ensure you can meet them.
- Gather Alternatives: Prepare alternative documents that might serve the same purpose (e.g., different proofs of income).
- Seek Pre-Approval: Some lenders offer pre-approval processes that can indicate whether you’re likely to qualify without affecting your credit score.
- Consult with Lender: Communicate with the lender about any missing documents to see if they can offer any flexibility or alternatives.
How do lenders assess a loan application?
In the loan application documents, a lender sees the overall creditworthiness of the applicant, calculates debt risk with relevant information such as credit score, income proof, and past banking history, Assesses the applicant’s monthly debt obligation with DTI ratio, and validates the loan purpose with relevant information. Overall, the lender uses provided information to convince himself that the borrower will repay the loan.
How to get a personal loan?
To get a personal loan, you will need to check your credit score with a soft inquiry, determine the loan amount and purpose, compare different lenders, and prequalify for your desired loans.
After that, you need to gather essential documents sign a personal loan application form, and submit it to your lender.
We suggest you Carefully read the loan agreement, including interest rates, fees, and repayment terms, and then accept the offer.
What a lender can do in case of loan rejection?
If the applicant receives a loan rejection letter, getting a co-signer or, choosing a secured personal loan can help.
A credit card can also be used to support any sudden cost. However, in case of rejection, a borrower must need to work for improving the credit score so that future applications receive positive response from the lender.
A co-signer can be an applicant’s family member or a friend who agrees with the lender about future paybacks by bearing the debt risk. However, in case of missed payment or default, the co-signer’s credit score becomes affected.
A secured loan can sometimes be a better choice for someone with loan rejection. In short, the applicant needs to pledge an asset to the borrower as a security of the loan. Such loans usually get accepted if the pledged asset meets certain criteria.
Conclusion
Documents are an essential part of any loan application. If you are the applicant, carefully review the requirements of your lender. Take time while gathering the required information and fill up the form without any errors. If your credit score is good, you will surely get a personal loan.
