Topics:Personal Loans 101
Guest Post by Rohit Mittal, Co-founder and CEO of Stilt.com
The world runs on credit. From getting a car to financing a new business, a lot of life activities require you to borrow money. Many nonresidents are creditworthy but still struggle to get approved for loans. If this is you, read on — we’ll outline what the problem is as well as what to do about it.
Before giving you money, all lenders decide how risky they think you are. To make this determination, they will look at your credit history. Have you paid back your past loans in full and on time? Or have there been problems?
A common issue for many immigrants is that they don’t have a U.S. credit history. Without a credit history, no matter how good your income is or how solid your finances are, most lenders will consider you high risk. The tools lenders use to evaluate potential borrowers just don’t work for your situation.
Additionally, many visa holders won’t be in the country for that long. This makes traditional lenders even more adverse to lending to immigrants.
Thankfully, more and more emerging lenders are specializing in immigrant loans. These lenders consider more than your credit history to determine loan approval. They will look at your employment prospects, educational background, income, and other factors to make a determination.
But even if you work with a less specialized lender, there are still ways to prove your creditworthiness.
Here are the three most common types of loans you can qualify for as a non-U.S. citizen:
Short-term loans are small loans which require you to repay quickly. Generally, the loans are capped at around $1,000, though some lenders may go higher. Repayment terms will be between a few months and a year.
An auto title loan is a short-term loan which uses the title of your car as collateral. These loans often have lower interest rates and let you borrow up to half the value of your vehicle. The downside, of course, is that you run the risk of losing your car if you struggle to make the payments.
Technically, any loan you get in a lump sum and pay back every month is an installment loan. But in the marketplace, an “installment loan” typically refers to a small loan that has a larger amount and a longer repayment period than a short-term loan. Installment loans generally go as high as $5,000 and can be an excellent tool to build or improve your credit history.
An unsecured loan is any loan which isn’t secured by a piece of property like a home, business, or car. With secured loans, a lender can recoup some of their costs by repossessing the collateral you put up for the loan. If a lender offers you an unsecured loan, it means they trust you can repay the loan easily. Unsecured loans can be offered for as much as $100,000 and can be used for almost anything.
It’s harder for a nonresident to get a personal loan than a citizen, but don’t let that stop you from pursuing one. You just need to compile a little more documentation and shop around for a lender who will work with you.
Here is what you will need to qualify for a loan as an immigrant:
Many lenders require a six-year credit history, which is impossible for many visa holders. Some lenders, however, will give you a personal loan if you have just two years of credit history and good credit. Unfortunately, even this requirement can be tough to meet for an immigrant.
If don’t meet the above requirements, you can help your case by compiling additional documentation that shows you are a good candidate.
Any history of payments you have made steadily and on time can potentially be used as a credit reference. Do you rent an apartment, pay utilities, have a cell phone contract, or make payments on a life insurance policy? Gathering proof of consistent, on-time payments for any of these will go a long way in qualifying you for a loan.
You can also try getting a credit reference from credit reporting agencies in your home country or from an independent foreign credit reporting agency. If a particular company abroad has served as your creditor, you can also try to get written verification of your credit history from them.
Try to get three non-traditional credit references with at least a year of activity each. Your credit history will also need to be free of black marks such as debt collections, bankruptcies, or foreclosures.
Lenders will want to know that you aren’t going to emigrate away from the United States with their money. Expect to document both your visa status in the country as well as proof that you are planning to stay for the term of the loan.
If you are working, your employer will need to be e-verified. E-verify is a free federal system for companies. It is used to determine if employees are eligible to work in the United States. Talk to you employer if they are not part of the system.
When you apply for the loan, you will also need to bring your visa and employment authorization form I-765, I-766 or I-797A.
A personal loan is useful for any number of things: consolidating debt, home repairs, or starting your own business. Many visa holders are excellent candidates for loans, but still have trouble borrowing because of their immigration status and lack of credit history. If you are in that situation, researching specialized lenders and compiling a set of nonstandard credit references can help a great deal. The resources above will help you get started.
Rohit Mittal is the co-founder and CEO of Stilt.com. Stilt is a fintech company focused on improving access to credit for immigrants and the underserved. The core mission of Stilt is to improve financial inclusion and help people live financially healthy lives who are shut out by the current financial system.
January 28th, 2021
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