Qualifying Criteria for Unsecured Loans
Updated: Sep 22
Understanding the Unsecured Loan Process
An unsecured loan is a type of loan that does not require any collateral and is granted based on the borrower’s ability and promise to repay the loan. Depending on personal credit, unsecured loans may have higher interest rates than secured loans, but this is not always the case. Examples of unsecured loans include credit cards, student loans, and personal loans for things like weddings, home remodels, appliance purchases, vehicles, business start-ups or purchases and more.
If you are thinking about getting an unsecured loan for any of these reasons, it’s important to understand unsecured loan qualifying criteria so you can increase your chances of getting the money you need. It would also be a good idea to review the unsecured loan process beforehand. In this article, we’ll be going over the unsecured loan criteria, so you know what to do to improve your chances of getting a loan.
Unsecured Loan Qualifying Criteria
There are three important unsecured loan criteria to consider:
1. Credit score
For most lenders, your credit score will be the key factor in their loan decision. Higher credit scores generally lead to better unsecured loan rates and higher loan amounts. A score of 720 puts you in FICO's 'Good' range, but scores of 740+ (Very Good) or 800+ (Exceptional) typically unlock the most competitive rates. Those with bad credit will be offered higher interest rates, or may be declined. However, that one lender turns down your application because of a low credit score does not mean all lenders will.
2. Debt-to-Income (DTI) ratio
The second most important unsecured loan criteria is your debt-to-income ratio. Often abbreviated to DTI, it refers to the relationship between your debt payments and income over the course of a month. It is calculated by dividing debt payments by income and then multiplying that total by 100 to get a percentage. Read more about DTI and how to calculate yours here! Unsecured lenders typically look for you to have a debt-to-income ratio of less than 36%.
3. Bank account transactions
The unsecured loan process can sometimes involve a lender looking through your bank account to see the money you have coming in and going out. This helps them understand how a potential loan payment would fit into your budget, but is not standard.
Qualifying criteria, rates, and loan amounts vary by lender and applicant and are subject to change. Contact Jumpstart Finance for current terms.
Benefits of Unsecured Loans
For most, the main benefit of unsecured loans is the fact that they do not require collateral. This allows borrowers to get the money they need without risking important assets. The unsecured loan process is also very flexible and typically fast, usually not requiring any business financials or other documentation for business owners. Additionally, unsecured loans offer borrowers more flexibility with how they use their loan.
The Unsecured Loan Process
Once you apply for an unsecured loan, you may be wondering what’s going on behind the scenes while awaiting your approval. Here is what that process typically looks like:
An unsecured loan application or inquiry is submitted by the client.
A Loan Advisor is assigned and reaches out to them to schedule a consultation.
With permission, the client’s credit will be pulled at this point (this is a “soft pull,” which has no impact on credit score).
The underwriting department reviews and issues a prequalification based upon the credit report and internal underwriting criteria.
With agreement to move forward, the client is then matched with the best banks and lenders for their situation.
Lenders begin to present offers to the client, which can be accepted or denied/countered.
Once an offer from a lender or bank is accepted, the funds will go directly into the client’s bank account.
Jumpstart Finance helps you access the best financing options for your business — including unsecured loans. Submit your deal and connect with a Loan Advisor today.
