How to get a personal loan without proof of income
Borrowers with collateral or a co-signer may obtain a personal loan without income proof
Traditional lenders typically need to verify your income before giving you a loan — which makes it difficult for those who have inconsistent income, such as freelancers, small-business owners or workers paid in cash, to be able to borrow. However, even if you don't have a regular paycheck, there are ways to get the money you need.
- Traditional lenders require income verification to approve a personal loan application.
- Alternative sources of income can qualify for loans as well, like pensions, alimony, child support, gig work, investments and small-business income.
- Take steps to strengthen your application by boosting your credit score before applying.
- Consider adding a co-signer who has a traditional paycheck to get approved or qualify for better rates, fees and terms.
What is proof of income?
When a lender underwrites a loan, one of its major focuses is determining how the borrower will pay back the loan. For most people, they'll repay their loan from the income from their regular paycheck.
To verify this income, lenders typically "request documents such as pay stubs, tax returns and bank statements,” said Jon Morgan, CEO of Venture Smarter. “These documents help them assess an applicant's consistent income, financial stability and ability to repay the loan."
What types of people don't have proof of income?
When you don't have a traditional job, it is much harder to document your income than it is for someone with a traditional paycheck. The people in this situation generally include:
- Small-business owners
- Social Security retirement or disability recipients
- Retirees with a pension
- Gig workers
- Workers paid in cash
- Dividend investors
- Rental property owners
- Unemployed workers
- Parents with child support
- Ex-spouses who receive alimony
These borrowers do have income that can be used to repay a loan, but the documentation is often cumbersome or difficult to piece together.
How to get a loan with no proof of income
If you're a borrower without traditional proof of income and are finding it difficult to get a personal loan, know that you can still get approved. It just might take a bit more legwork.
Here are some steps you can take to improve your odds of success when applying for a personal loan.
Fix errors on your credit report
You can get a free copy of your credit report from each major credit bureau by going to AnnualCreditReport.com . If there are any erroneous items, you can dispute these directly from the credit bureau’s website or by sending a written letter. You should also send a written dispute to the creditor that reported the item to the bureau. Creditors have 30 days to respond and take action. Otherwise, the credit bureaus will remove the disputed items.
Take steps to improve your credit score
A few steps to boost your credit score include:
- Keeping balances below 30% of your credit limit
- Making all payments on time
- Avoiding unnecessary credit inquiries
- Having a mix of credit types (e.g., credit cards, mortgages, term loans)
- Keeping your oldest accounts open
If your credit score is still low, consider lenders that have alternative credit scoring models. Lenders like Upstart use additional information when making credit decisions, such as education and employment.
Research different lenders
However, be wary of predatory lenders that specifically target borrowers who cannot verify their income.
"Without a reliable income source, borrowers might resort to predatory lending options with exorbitant interest rates, plunging them deeper into debt,” Morgan warned. “Moreover, being unable to meet repayment obligations could severely damage your credit score , hindering future borrowing opportunities."
Here are some examples of the documentation you may have to prove your income:
- Tax returns
- Form 1099 from clients
- Rental property leases
- Dividend and interest income statements
- Bank account and investment account statements
- Income statement from your business
- Court order for alimony or child support
- Unemployment receipts
- Disability benefit statement
- Pension statement
Consider adding a co-signer
Even if you could get approved on your own, the co-signer's income and credit score could also help you secure more favorable loan terms. This could lower the amount of origination fees you'd pay or the interest rate charged. It could also allow the lender to structure the repayment period so the monthly payment amount fits your budget.
Secure the loan with assets
In some cases, you may receive a lower interest rate with a secured loan versus one that is unsecured. This is because the lender has collateral backing repayment instead of your credit score and paycheck.
Include alternative income on the application
For example, borrowers do not have to include alimony or child support on their loan applications if they don't want it considered. However, you can choose to include those sources of income to improve your approval odds.
Other ways to get funds without proof of income
When you cannot get approved for a personal loan, there are other options to get the money you need. These alternative loan options take advantage of your credit score and relationships without undergoing traditional credit underwriting.
Borrow from friends and family
Friends and family may be able to lend you money without strings attached. These informal loans are often best viewed as gifts, so they don't ruin relationships if you have trouble paying them back.
Otherwise, consider setting up a formal loan agreement to establish how and when the money will be repaid and under what terms. Make sure that the interest rate is reasonable so they don't run afoul of federal tax laws on gifting.
Margin loan against investments
Brokerage companies and fintech apps may let you borrow against your investments. Margin loans often charge a low rate of interest and do not require normal credit underwriting.
But be careful with margin loans because if the value of the assets drops, you could be forced to sell or deposit additional money to bring your account into compliance. Selling assets to cover the loan could trigger a tax bill or lock in a loss on your investments.
Loan against cash value life insurance
Many cash value life insurance policies allow owners to borrow against the cash value. These loans typically do not require any underwriting, and the funds are available quickly. If the loan has not been repaid before the covered person dies, the amount outstanding will reduce the death benefit to their beneficiaries.
Many community organizations offer grants to help those in financial need. These grants do not have to be repaid, but you may owe taxes on the money received. Usually, recipients are eligible for these grants on a one-time or limited-term basis.
Peer-to-peer lending networks make connections between borrowers and lenders. The lenders are typically individual investors who put money into a variety of loans. They usually invest small amounts into a variety of loans to reduce their risk against loss. Borrowers receive money from the network, and then their repayments are spread out to the investors who participated in the loan.
Title loan against a vehicle
A title loan against your vehicle can provide quick money at a costly interest rate. These loans are best for short-term borrowing because the interest rates and fees are so high. However, the lender typically does not require proof of income or a credit check. Title loans use the value and equity of your vehicle as collateral to secure the loan.
Pawnshops lend against a variety of items based on their perceived value. The pawnshop holds onto your asset until you repay the loan. Typically, you have a set amount of time to repay the loan to buy back your asset before the pawnshop allows others to buy it from its inventory. In other words, the pawnshop will sell your item to someone else if you don't pay back your loan quickly.
» MORE: Best ways to borrow money
What counts as proof of income?
Lenders have different requirements for proving income but generally accept pay stubs, W-2s and tax returns. Alternative proof of income may include bank statements, 1099s, court orders for alimony and pension documents.
What documents do I need for a title loan?
To get a title loan against your vehicle, you'll need a clear vehicle title and valid government identification. Additional requirements may vary by state and lender. You may need to provide proof of income, proof of residency or valid vehicle registration.
Credit card or loan: Which is better?
Choosing between a credit card or a personal loan depends on your circumstances, the terms available and how quickly you'll repay the money. A credit card offers easy access to cash at a high interest rate, although new credit cards may offer a 0% APR promotional offer. Personal loans offer a flat monthly payment with a set interest rate to be repaid over one to five years.
- Federal Trade Commission, " In FTC Study, Five Percent of Consumers Had Errors on Their Credit Reports That Could Result in Less Favorable Terms for Loans ." Accessed Oct. 6, 2023.
- Consumer Financial Protection Bureau, " Can a debt collector still collect a debt after I’ve disputed it? " Accessed Oct. 6, 2023.
- FICO, " What's in my FICO Scores? " Accessed Oct. 11, 2023.
- Consumer Financial Protection Bureau, " Can a lender or broker ask me about the alimony, child support, or separate maintenance payments that I receive? " Accessed Oct. 11, 2023.
- Charles Schwab, " Family Loans: Should You Lend It or Give It Away? " Accessed Oct. 11, 2023.
- Instrumentl, " Can Nonprofit Grants Be Taxed? " Accessed Oct. 11, 2023.
- TitleMax, " How to Get a Car Title Loan ." Accessed Oct. 11, 2023.
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