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Home > What Are Income-Based Loans?

What Are Income-Based Loans?

If you’ve ever been in a financial situation where you needed a loan but couldn’t secure one due to poor credit or lack of financing options, you’re not alone. Most of us require additional funding at some point in our lives, but some have realized just how helpful income-based loans are. 

In this guide, we’ll discuss income-based loans, what they are, how they work, what their eligibility requirements and benefits are, and how to secure one to cover your emergency or finance a big purchase. 

Income-Based Loans

Poor Credit Income-Based Loans

Traditional financial institutions usually determine the borrower’s eligibility for a loan based on their credit score and credit history, which are also used by lenders to determine the appropriate interest rates, with more favorable rates reserved for those with better credit scores. 

However, if the borrower doesn’t have the required FICO score (the minimum score requirement for most lenders is 670), they’re usually declined for a loan. Fortunately, the eligibility for income-based loans isn’t determined by the borrower’s credit score but rather by their disposable or discretionary income, or the amount of income remaining after the deduction of income taxes and cost of living. 

Income-based loans are designed to make borrowing more accessible to individuals with poor credit but stable incomes. Unlike secured loans, they don’t require any collateral, which categorizes them as unsecured loans, and the perceived higher risk by the lender means that these loans often come with higher interest rates compared to secured loans. 

Adhering to income-driven repayment plans can help you build your credit and secure more favorable loan terms in the future. 

How Do Income-Based Loans Work?

Income-based loans are personal loans that focus on different eligibility criteria than traditional loans that often rely on credit scores. Instead, income-based loans primarily determine your eligibility by considering your income and debt-to-income ratio; some lenders even consider your family size. However, it’s the strong income that demonstrates your ability to make income-based repayments.

That doesn’t mean that your credit score doesn’t play a crucial role in the loan application and approval process. While most income-based loan lenders don’t rely on your credit score to determine eligibility, they will still conduct a soft credit check to inquire about the state of your credit. 

The lenders will then use that information to determine your interest rates as well as loan repayment terms. Naturally, more favorable terms are reserved for borrowers with higher credit scores. 

These types of loans are a good financing option if you happen to have a few negative marks in your credit history but also have a steady stream of income. In some situations, you may also even qualify for a better loan from an income-based lender than a lender that relies on credit scores, which are the primary eligibility criteria. 

The application process is pretty straightforward: you apply for the loan online and submit all the necessary documentation: 

  • Government-issued ID: Most lenders require loan borrowers to submit some form of personal identification, such as a passport or a driver’s license, which is usually required to verify the borrower’s identity and age. You must be at least 18 years old to qualify for an income-based loan, but this requirement also varies by state since some states impose their own age requirements. 
  • Proof of income: Borrowers applying for an income-based loan must submit proof of income to demonstrate their ability to make monthly payments during the repayment period. In most cases, the source of income doesn’t matter as long as it’s generated through employment, self-employment, self-employment, social security, pensions, or other income streams. Most lenders accept pay stubs or bank statements as proof. 
  • Proof of residency: You’ll also need to provide proof of residency; any document addressed to your name should suffice, provided that it has a visible address. This includes utility bills, mortgage statements, property tax statements, property insurance proof, and even rental agreements. 
  • Personal details: You’ll have to provide personal details during the application process, including your name, phone number, email, social security number, date of birth, and address. Please note that these requirements vary from lender to lender. 

Once you’ve filled out the loan application and submitted all the required documents, the lender will require some time to review the documents, perform a soft credit check, and determine the appropriate interest rates, loan terms, monthly payment amounts, and even a loan amount. 

Upon assessing the necessary information, the lender will make you a loan offer. If you find the loan offer satisfactory, you’ll need to sign the loan contract and provide the lender with your banking information, such as checking and routing numbers. Most lenders will deposit the fund into the provided bank account within 24 hours (weekends and holidays not included). 

After receiving your money, you must repay your remaining loan balance by adhering to the lender’s standard repayment plan. If your personal finances change and you become unable to make timely payments, you should notify your lender and discuss options to refinance your loan. 

Benefits of Income-Based Loans

Income-based loans offer many benefits that make them appealing to borrowers looking for access to funds without lenders basing their eligibility requirements on credit reports. Some of those benefits include: 

  • Convenience: Income-based loans are incredibly convenient since most lenders provide online loan application processes, which can be completed from the comfort and convenience of your home. All you need is a smartphone, a tablet, or a computer with internet access, and depending on the lender of your choice, you may even complete the entire application online or apply online and visit a local branch office to complete the application process. 
  • No-risk estimates: Most lenders offer pre-approvals, which allow you to find out whether you’re eligible for a specific loan or not. In most cases, a pre-approval also involves a soft credit check, which won’t adversely affect your credit score. 
  • No credit score requirements: The main benefit of income-based loans is that the eligibility for the loan is determined using your income, not your credit score, which can help you secure a loan. Furthermore, most lenders will report a timely repayment to a Credit Bureau, so making on-time payments could improve your credit score, leading to more favorable loans in the future. 
  • No hard requirements: Lenders typically aren’t concerned with the purpose of your loan, and you can spend the funds in any way you like. For example, you can consolidate your federal student loan debt and other obligations, such as credit card debt, into a single financial obligation at a unified rate. 

Where to Get Income-Based Loans

One of the best parts about income-based loans is the market diversity, which allows you to pick, choose, or even customize your loan plan to better meet your needs. Income-based loans aren’t associated with direct lenders anymore; seeing their value, even traditional institutions started offering income-based loan products. 

You can apply for an income-based loan with any online lender. Some lenders specialize in income-based loans for borrowers with limited or bad credit scores, and their loan services can even help you build up your credit and secure better loan terms in the future.

Credit unions typically have more flexible borrowing requirements compared to other traditional lenders. They might be willing to offer a loan based on income rather than credit score, so they’re worth checking out. The same applies to some banks, so make sure to inquire about income-based loans at your local branch offices. 

Lastly, you can inquire about income-based loans at Primo Personal Loans; we’ll connect you with reputable third-party lenders free of charge. 

Frequently Asked Questions

Here are some of the most frequently asked questions about income-based loans: 

Can you get a loan based on income?

Yes, you can obtain a loan based on income; such loans rely on your income to determine eligibility but may still rely on your credit score to determine adequate interest rates and loan terms.

How to apply for income-based loans?

Applying for an income-based loan is pretty straightforward, but you must submit the necessary documents for the loan application process. For a more in-depth explanation, please refer to our guide. 

How to change student loans to income-based?

One of the biggest benefits of income-based loans is that they allow you to consolidate debt, including your student loan. Simply secure an appropriate loan amount from an income-based loan lender, consolidate your debts into a single debt, and repay the loan. This eliminates having to keep track of due dates, different installment rate amounts, and different interest rates. 


Finding a loan with a poor credit history might be challenging. If you’re looking for income-based loans to cover financial emergencies, consolidate debt, or simply make a bigger purchase, contact us.

We’ll connect you with reputable third-party lenders and financial institutions without inquiring about the nature of your financing. Our services are available 24/7, allowing you to inquire about income-based loans and other loan products regardless of whether it’s day or night, weekday or weekend. Online inquiry takes minutes to fill out and contains no hidden fees or charges. 

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