When you borrow money by taking out a loan, you can bet there will be paperwork involved. Since the lending party needs to verify that you can pay, you'll need to be prepared with specific qualifying documentation. Where it gets complicated is that documentation differs based on loan type.
What Documents Are Needed for All Loan Types?
There are a few documents common to all loan types, including:
- Government-Issued Identification: This can be a driver's license, passport, birth certificate, or identification card. Lenders require you to show proof of who you are before applying for a loan.
- A Loan Application: No matter what type of loan you're trying to get, you'll need to fill out an initial application. This will include pertinent information like your name and address. For some loans, you can apply in person, but nowadays, many applications can be filled out online in minutes.
- Credit Report: While this isn't a document you'll need to provide, most lenders will pull your credit report before extending any credit, particularly if a loan is unsecured or not tied to collateral like a car or home. Some loans, like instant cash advances, may not require a credit check.
Documents Needed for Personal Loans
Since a personal loan is unsecured, a lender will need to verify your income as proof that you can make loan payments. That means a lender could ask you for:
- Proof of Income: You can prove your income by providing a recent paystub, tax return, bank statement, or the contact information for your employer so the lender can reach out to them directly.
- Proof of Address: Lenders sometimes gauge riskiness based on the stability of your residence. This can be shown by providing a recent utility bill, for example.
Auto Loan Documents
To get the best possible interest rate on an auto loan, you may need to prove to lenders that you have a solid credit score and the ability to repay the loan. Lenders providing auto loans could ask for:
- Proof of Insurance: Since lenders technically own the car over the life of the loan, they'll often require full coverage to protect their asset.
- Proof of Income: Auto loan providers need to guarantee that you can make payments when you drive the car off the lot. They'll likely need to see proof of income such as a paystub or bank statement to confirm that you make enough money to afford a vehicle payment.
Documents Necessary for Small Business Loans
If you're considering starting a small business, you know that the need for capital is real. There are so many unforeseen expenses that need to be covered, especially if you plan to have a team. Due to the high cost and high risk of small businesses, the lender may request to see certain documents to know their financial investment is protected and can be repaid.
- Business Plan: The loan provider is interested in your proposed business's ins and outs and how you intend to make money. A business plan is an explanatory document that outlines the products or services you plan to sell, a marketing analysis to prove there are buyers, and a general budget.
- Personal Tax Returns & Credit Report: Even though the loan you need is for your business, the responsibility to pay it ultimately falls on the owner(s). To qualify for a small business loan, you'll likely need to show that you've been savvy with your personal finances and can handle the additional responsibility of managing them for the business.
There are many loan options available if you need money and understanding the documents for each type of loan doesn't need to be complicated. When in doubt, reach out to the lender directly and verify what you need before applying.
Notice: Information provided in this article is for informational purposes only. Consult your financial advisor about your financial circumstances.
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Original Source: Breaking Down the Documents You'll Need to Get a Loan
