Tenant Loans: Requirements & Eligibility Explained

A tenant loan is an alternative to a home equity loan for those who rent, instead of own property. Since renters do not have actual equity to place as collateral, these loans are unsecured. Other requirements must be met to overcome for the lack of collateral.

#1 Stable Income

Individuals without an income will not be able to secure most loans, and this includes a tenant loan. Not only will the borrower need a job, that job must pay enough to cover the cost of the loan. It also should be stable, meaning the borrower has been employed for at least two years. Self-employed persons or independent contractors may find loans if they can verify income by providing a tax schedule showing consistent income. 

#2 Low Debts

Income does not exist in a bubble; it is relative to the financial obligations a person has. A tenant loan lender will want to compare income to how much the person owes each month in rent and other debt payments. The size of the loan a borrower can achieve will be directly related to this income to debt ratio. Persons with high amounts of debt may only qualify for very low tenant loans.

#3 High Monthly Payments

Tenant loans tend to be very short, maturing within 12 to 24 months. It is rare to get a tenant loan beyond this amount of time. As such, high monthly payments will be required to repay the loan in such a short window. These high payments can be very risky for borrowers, and default is common on these short-term, unsecured loans. A borrower who cannot make high monthly payments will have to agree to very unfavorable terms such as high interest or even a lower initial sum. 

#4 Good Credit

Any unsecured loan presents a greater risk to the lender. In the case of default, a lender cannot simply seize the collateral to cover losses. Lenders will not make high risk loans to high risk borrowers in most cases. They will only offer these loans to borrowers who have an established history of repaying debt. It is particularly important to have an installment loan on record. Since a tenant loan is repaid in installments, a borrower who has never handled an installment loan has not proved he or she can appropriately handle a tenant loan. Other installment loans include car loans, student loans and some personal loans.

#5 Assurance Against Default

The lender does not have collateral to assure against the possibility you will default. This doesn't mean the lender will simply walk away if you do; instead, the lender will attempt to collect from you in a variety of legal processes. It is more difficult for a lender to collect from a borrower who changes addresses and jobs frequently. For example, it is very challenging to collect from an individual in the military. A lender will want to see you are staying in one place with a consistent and predictable schedule so it knows it can find you if you do happen to default.