There could be several reasons why you may need a loan. Maybe you’d like to improve your home, buy a car, go on a vacation, consolidate your debt, or you’re getting hitched.
Whatever your reason, getting a personal loan is a good way to help you realize your dream sooner.
There is no universal way to have your loan application approved. Requirements like income and credit score vary from lender to lender and some lenders even consider nontraditional data, such as education level or good cash flow.
But there’s one thing lenders have in common. They only approve applicants who meet their eligibility criteria. Here are 5 ways to increase the chances of your loan application being approved.
Determine What Sort of Loan You Need
When it comes to personal loans, people usually think of closed-end, unsecured installment loans. Technically, however, credit cards, mortgages, and auto loans are also personal, rather than business loans. Be sure to understand what kind of loan you’re applying for.
Sort Out Your Credit Score
When trying to secure a loan, sorting out your credit score should be one of your top priorities.
Start by asking for your annual credit report. You can get one for free at AnnualCreditReport.com. Analyze your credit score thoroughly and check for any incorrect information. If you find any errors, ask that they be deleted. If you need assistance in doing so, consult a financial expert that’s experienced in credit collection.
Credit reporting agencies calculate your score with a proprietary algorithm. While you’ll not know the actual score lenders are using, you can use your own credit score to generally understand how you appear to lenders, in terms of risk.
You can improve your risk equation by doing the following things to improve your credit score.
Pay Your Bills Promptly
Fulfilling your financial responsibilities by paying bills in full and on time every month shows a lender like NetCredit that you can manage credit. Please read here first if you want to try NetCredit.
Build Up Your Credit History
To bolster your credit history, you can take several important steps.
First of all, make sure that your landlord reports your monthly rent payment to major credit bureaus. In addition, make use of a low-interest credit card when paying for smaller expenses like your dry-cleaning bill or buying a coffee at Starbucks. Then make sure to settle that credit card bill promptly.
To lenders and creditors, a clear history of timely payments shows you’re a responsible borrower and that should boost your credit score.
Keep Track of Your Credit Utilization
The debt used from all your available credit (credit utilization) is one of the main elements of your credit rating. Reducing your credit utilization ratio (like keeping the debt you owe below 30% of your maximum credit limit) can positively impact your credit score, as it shows you’re responsibly managing your credit.
Regularly Look at Your Credit Report
Taking a look at your credit score on a regular basis will help you better understand your credit score and credit health. Plus, it’s a great way to detect identity theft.
Once you have taken the right steps to bolster your credit score, it’ll only be a matter of time before you get your first loan.
Apply for Only What You Need
There’s naturally a higher risk attached to lending a person $25,000 than there’s to lending $5,000 if all credit factors are equal.
While you may need only $5,000, you might also feel that it would be nice to have extra cash left over for a holiday, to treat yourself, or buy something else.
But depending on your credit history and credit score, the additional borrowing could make the difference between your loan application being approved and being denied.
When taking out a loan, only apply for what you really need.
Find the Right Lender
Shop around for lenders. However, your choices could be limited depending on the type of you loan you need. Some lenders don’t offer student or business loans. Begin your search at institutions well known for advancing affordable loans.
Credit unions and banks are a great place to apply for most loans. Consider various institutions and compare costs and interest rates. You can also consider peer-to-peer loans or other marketplace lenders.
There are also various sites with access to several lenders. It’s perfectly safe to borrow online, provided that you only deal with reputable sites.
You can also borrow from your close friends or family. Although that can keep costs down and make approval easier, it may also cause issues. Be sure to write everything down so everyone’s in agreement. Money can damage relationships, even if it’s small amounts.
Steer clear of predatory lenders and high-cost loans. When you’ve been knocked back repeatedly and don’t know what to do next to get a loan, it might be tempting to take any offer you can get. It’s not worth it, though. They’ll give you a loan, but you’ll land in a hole so deep that it’ll be almost impossible to dig yourself out of it.
Rent-to-own programs and quick loans are the costliest choices, and loan sharks may be extremely dangerous.
Consider a Co-signer
If you have a “fair” credit score, teaming up with a co-signer with better income and credit can boost your chances of loan approval.
As the cosigner is equally liable to repay the loan, it’s vital to find someone who can handle the risk. While you may be more than willing to repay the loan, you can’t foretell a job loss, illness, or other misfortune that affects your ability to pay back the loan.
Have a candid chat with the potential co-signer so they totally understand the risks involved before agreeing.
The Bottom Line
When applying for a loan, make sure it markets itself. Be sure to fill it out as per the lender’s requirements. You need to have a strong credit score and prove that you have the ability to repay the loan. Apply to a number of lenders and wait patiently. And, of course, go for a lender with a low-interest rate.