Q:

Why do you need to give your pay stub when applying for a loan?

A:

Quick Answer

Lenders typically require pay stubs with a loan application to ensure that the applicant has the income to pay off the loan. All the applicant's pay stubs from the last two to three months are normally required, as of February 2015.

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Full Answer

An applicant who does not have pay stubs, such as one who is self employed, may have to verify his income through tax returns or bank statements. Tax returns may also be required even if the applicant has pay stubs for his employment, as the tax returns allow the lender to see how much the applicant typically earns per year and his earning trends.

The information required by a lender varies based on the type of loan. Other information that may be necessary include a W-2, statement of outstanding debt and statement of assets. The lender may perform a credit check.

A credit check obtains the applicant's credit score, allowing the lender to verify that he meets the minimum requirement for the loan. It also shows the lender what other debts the applicant is currently paying. He is still required to include his debts on his statement of outstanding debt. The statement of assets includes money in bank accounts, stocks and bonds. The lender uses this to verify that the applicant can cover a few months of payments through savings if necessary, but a substantial amount of assets can help the applicant get a better deal on his loan.

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