It’s a chicken-and-egg scenario: you need a loan because you don’t have the funds available to cover an expense, but your income is too low to qualify for a loan. While a personal loan from a bank requires a strong income, there may be options available to low income earners.
Here’s what you need to know about personal loans if your income is a little on the lower end of the spectrum.
Key Points
- Lenders require borrowers to meet minimum income thresholds before approving loan applications.
- You can still get approved for a personal loan with a low income, depending on the lender, the loan type, and loan amount you request.
- In some cases, non-traditional income sources may be accepted, like government benefits for private pensions.
- You may find more success applying for a personal loan with an alternative lender if you earn a low income.
Can You Get A Personal Loan With Low Income?
Yes, low income earners can qualify for personal loans, though it may require a bit more strategy and flexibility. Many private lenders in Canada offer personal loans for borrowers with more modest incomes.
That said, your approval chances will depend entirely on what type of lender you apply with, as well as your ability to pass their specific borrowing requirements. More specifically, low income earners will have a higher chance of being approved for a loan if they apply with a private lender.
Borrow Up To $50,000
How To Qualify For A Personal Loan With A Low Income
To qualify for a personal loan with low income, your lender will generally assess the following factors:
Your Credit Score
Your credit score is an indicator of how likely you are to repay your debts on time. Many lenders will use your credit score when assessing your risk and determining what interest rate to charge you. As such, it’s beneficial to increase your credit score prior to applying as it can help you qualify for a loan, especially if your income is low.
Your Debt-To-Income Ratio
Debt-to-income ratios are another thing lenders use to assess applicants. A DTI ratio of around 32% or lower is preferred. The higher your DTI, the harder it will be to acquire a personal loan with reasonable rates and conditions.
Paying off some current debts can lower your DTI and increase your ability to get a loan.
Your Job Stability
If you’re looking to finance a loan over a long term, your lender will want to ensure that you have a job that is stable enough to handle the payments. If you have unexplained gaps between your job, your lender may be more hesitant to give you a loan, especially larger loans with longer terms.
Ensure you’re employed steadily for 3 – 6 months with your current employer before applying for a loan to give yourself the best chance of approval.
Can I Get A Personal Loan Without A Job?
Yes, you can get a personal loan if you’re unemployed, but you still have to earn some form of income on a regular basis to show that you can pay back the loan. Many alternative lenders accept non-traditional income sources, such as the following:
- Employment Insurance (EI) benefits
- Disability benefits
- Canada Child Benefit (CCB) payments
- Canada Pension Plan (CPP) payments
- Private pension payments
In this case, lenders will skip employment verification but may still require bank statements to show that the money is coming in consistently. Just keep in mind that these types of loans often come with higher interest rates and lower loan amounts due to the added risk for the lender.
Learn more: No Employment Verification Loans In Canada
Where Can You Get A Personal Loan?
Filters
- Amount
- Up to $35,000
- Rate
- 9.99% – 34.95%
- Term
- 9 – 78 Months
- Amount
- Up to $60,000†
- Rate
- 19.99% – 34.99%*
- Term
- 6 – 120 months
- Amount
- Up to $10,000
- Rate
- Varies by product
- Term
- Varies by product
What Do You Need To Apply For A Personal Loan?
To verify your income, lenders may ask for at least one of the following documents:
- A recent pay stub to see if you meet their minimum income requirements
- A recent bank statement to learn more about your finances and liabilities
- Your latest tax return
- Your employer’s contact information
Here are some other general requirements you need to get loans with low income:
- An active bank account for the lender to deposit your loan and collect payments)
- A low debt-to-income ratio
- A decent credit score of at least 660+
- Proof of residency, such as a utility bill or another document with your name and address
- Proof of identity, such as a passport or driver’s license
What Should You Consider Before Applying For A Loan?
Here are some tips to help you get approved for a personal loan despite a low income:
Create A Savings Fund
Getting approved for a personal loan is all about minimizing the lender’s risk. One way to do that is to show that you have plenty of cash reserves. This will tell lenders that you have the funds to make your personal loan payments on schedule, even if you have to dip into this account because of low monthly income earnings.
Build A Good Credit History
If you don’t require the loan urgently, take some time to build your payment history and credit score. The higher your credit score, the less risky you’ll seem as a borrower. You can improve your credit score by:
- Making debt payments on time
- Keeping your credit card expenditures to under 30% of your credit limit
- Minimizing loan applications
- Checking for (and fixing) errors on your credit report
Get A Letter Of Employment
If you’re self-employed, getting a letter of employment that details your pay and term at the company can help boost your odds of approval.
Get A Co-Signer
If you’re unable to qualify for a loan on your own merit, consider adding a co-signer to your loan contract. A co-signer is someone with a strong income and credit score who guarantees that loan payments will be made, regardless of the circumstances. This acts as a form of security for the lender because the co-signer must take responsibility for your payments when you can’t afford them.
Learn more: Should You Cosign A Loan? The Good And The Bad
Have Proper Documentation
During the application process, your lender may ask for recent pay stubs to confirm that you have a job and earn an income. If you’re a new employee, they could also request your tax slips from the past 2 years to get an idea of the income you earned from your previous job. It’s important to provide all the required documentation, as any missing information can lead to rejection.
Get One Loan At A Time
It’s not smart to apply for multiple loans. Not only can this cause serious debt and a drop in credit score (due to hard inquiries), lenders will see you as a riskier client, especially if you’re being denied for credit regularly.
Compare Lenders
Prior to applying for a personal loan, make sure to compare lenders so you can locate the best deals in your region. Additionally
Other Types Of Loans You Can Get With Low-Income
Since it can be difficult to qualify for a personal loan when your income is low, you might want to look into alternatives if you need fast cash:
Credit Card Cash Advance
If you already have a credit card, you may consider tapping into your credit account when the need for extra money arises. A credit card cash advance allows you to borrow on credit, up to your credit limit, without the need to apply for a separate loan.
However, keep in mind that interest rates on cash advances are typically higher compared to purchase rates. Plus, there’s no grace period, which means interest will start to accrue immediately after drawing from your credit account.
Alternatively, you may consider small cash advances from services like Bree or KOHO:
- Bree: Bree offers quick cash advances for up to $500 with no interest or hard credit inquiries.
- KOHO Cover: Instant, interest-free cash advances are available for up to $250 without a credit check.
Payday Loan
Payday loans are one of the easiest types of credit to acquire. Normally, you just need to be a Canadian resident, have an active bank account, be past the age of majority in your province/territory, and earn a minimum monthly income of around $1,000 – $2,000. Once approved, you can obtain a $100 to $1,500 loan with a 14-day payment term.
| Note: Payday loans can be hazardous to your finances because they have sky-high interest rates and require full repayment within a short term. Plus, the world of payday loans is notorious for attracting scam artists and predatory lenders. |
Learn more: Payday Loans
Guarantor Loan
If your loan applications are being denied due to your bad credit or for some other reason, you may want to consider a guarantor loan. A guarantor is someone who steps in and takes over making loan repayments only after the primary borrower defaults on the loan.
Essentially, guarantors provide financial backup, which reduces the lender’s risk. However, unlike a cosigner, a guarantor’s name doesn’t appear on the title if there is collateral involved.
Final Thoughts
If you’re a low income earner in need of a personal loan, you still have options. There are many lenders and loan options to choose from in Canada. As long as you still earn some form of income, meet the lender’s minimum income threshold, and do some research, there may be a financing option out there for you.
Personal Loans for Low Income Earners FAQs
What happens if I have difficulty repaying my personal loan?
What is considered part-time work?
How can I get a personal loan with a low income?
Can I get a personal loan without showing income documentation?
What is the minimum income for a personal loan?
Can you get a personal loan with a low income if you’re self-employed?
®Fairstone Financial Inc. is a wholly owned subsidiary of Fairstone Bank of Canada.
*Interest rates are subject to change. Actual Annual Percentage Rate (APR) varies based on the province of residence and individual factors like credit details and loan amount. The interest rate on an unsecured personal loan is 31.99% in BC.
†On approved credit. Terms and conditions apply. Interest rates vary by province/territory and from customer to customer based on factors like credit score and borrowing history. See Fairstone’s website for details.
Fairstone Financial Inc. holds high-cost credit licenses in AB, MB (License #85047, expiring 20-02-2026) and QC; it has applied for a high-cost credit grantor license in NL. For license information by province, visit Fairstone.ca/HCCG
In Ontario, Fairstone Financial Inc. is licensed as mortgage brokerage 10821.
In Nova Scotia, Fairstone Financial Inc. is licensed as mortgage lender #2021-3000028.
