How to get approved for a personal loan when you have student debt

Take these steps to secure the financing you need. (iStock)

If you need to consolidate debt or pay for an unexpected emergency, you may consider a personal loan. However, if you have a high amount of student debt, you may be wondering about your chances of being approved. Lenders assess borrowers in a variety of ways. It helps to know where you stand, and the steps you can take to get the funding you need.

Factors lenders look at in personal loan applications

Personal loans are usually unsecured, which means you don’t have to put up any collateral. As a result, lenders scrutinize applicants to minimize their risk. Banks will look at three key elements as they determine your ability to repay the debt.

Debt-to-income ratio

Credit history

Career or education experience

1. Debt-to-income ratio

A lender will look at how much debt you already have compared to your income. This is called your "debt-to-income (DTI) ratio." To determine yours, add up all of your debts, such as your student loans, car notes, and credit card balances, and divide it by your monthly gross income. If you have multiple student loans, they will impact your ratio. Most lenders prefer a borrower to have a DTI ratio of 40 percent or lower.

For example, if your monthly income is $4,000 and you have a monthly car payment of $500, a credit card minimum payment of $100, and a student loan payment of $400, your DTI is 25 percent. But if you have several federal student loans and private student loans with a total monthly bill due of $1,200, your DTI would be 45 percent, which will hurt your chances of being approved.

Online marketplace Credible is a great resource when it comes to personal loan shopping. Just insert your desired amount and some basic information to see what kind of rates you qualify for.


2. Credit history

Lenders will also look for applicants who have a good credit history, which shows that you pay your bills on time. If you’ve been diligent with your loan payment, they could work in your favor because it demonstrates you’ve been a good borrower in the past.

You can check personal loan rates through Credible without affecting your score.


Lenders will review your credit history by looking at your credit report and FICO credit score. Your credit score is based on your repayment history, the age of your credit, your credit utilization, the types of credit you have, and the number of inquiries on your credit report. Lenders prefer applicants with a good credit score, which falls between 700 and 749, or an excellent credit score, which is 750 or higher.

3. Career or education experience

Lenders may also consider your career and education experience to determine your job stability. If you’re still in school and have loans, you may have a hard time qualifying for a personal loan. But if you’ve completed your degree and have spent a few years in your job, you’ll probably have a greater chance of getting the funding as lenders prefer borrowers with professional experience and degrees.


How can you boost your chances of getting approved?

If you are turned down for a loan or suspect you will be, you can take some steps to improve your chances.

First, ensure that you’re paying your debts on time. If you are having trouble being current with your bills, review your budget and look for areas where you can cut back to free up cash. Once you’ve got a few months of paying your bills on time under your belt, you can look for a loan from some of the best personal loan lenders.

Another step to take is to improve your DTI ratio by consolidating debt and refinancing your student loans into one lower monthly payment. Use an online loan refinancing calculator like this one from Credible to get a sense of your new monthly payments and how they will affect your DTI ratio. Compare multiple refinancing companies to search for the lowest rates.

While it may be tempting to send out several credit applications, be cautious. Having too many hard inquiries can negatively impact your credit score — and your chances of being approved. Instead, use an online tool like Credible.

You may also consider getting a consigner on your personal loan. If you have a family member or friend who has good credit and would be willing to vouch for you, it could improve your chances for approval, reduce the interest rate you’ll be charged, and provide you with a chance to improve your credit history going forward.

A personal loan is possible when you have student debt, as long as you've proved yourself to be a credit-worthy borrower. When you're ready to apply, visit Credible, where you can shop and compare lenders and rates to find the best offer and terms for your situation.