The purpose of a personal loan is to aid you in your one-time expenses, such as paying for a child’s wedding, getting a new car or house, or going on vacation. Regardless of the reason, a personal loan provides you with the money you need to meet your goals.
However, securing a personal loan is not always easy. Most people find the requirements and the process terrifying and cannot figure out where to begin. The worst fear is getting your personal loan applicationrejected, which can be extremely frustratingespecially if youwere in dire need of the money.
No lender lets you know whether you will get approved or not whenyou submit the application, but you can increase your chances of success by taking the necessary precautions. When it comes to getting a personal loan approved, there is no universal formula for it.You just need to prove to the lender that you will be able to repay the loan, along with interest, on time.
Here is an ultimate guide to help you win over your lenders and secure personal loans. Make sure you follow these five tips to get your personal loan application approved.
- Apply Only For What You Need
Although loans are pursued by every other person nowadays, you can easily get caught up in a whirlpool of debt if you are not careful. Hence, before applying for a loan, it is important to decide on the exact amount of cash you need. This tip might seem unnecessary to mention here, but it will save you a lot of trouble in the end. You don’t want to pile up significant amounts of debt you don’t need, only to drown in it in the future.
The amount you apply for also affects the chances of approval. Astaking precautions is a part of human nature, many applicants consider applying for a little more cash over the amount in need, but requesting for this extra cash can have a significant impact on your application, depending upon your profile.A large amount of money increase the degree of risk for the lender and they are likely to be more vigilant about approving your loan application as a result.
- Don’t Try Too Hard
It is tempting to submit a personal application to multiple banks and lenders simultaneously to increase your chances of getting approved, or better yet, to eliminate the chance of rejection. As mentioned above, lenders see your profile, your history, and your scores just to check whether you can pay off the loan or not. If you apply at multiple places at the same time, it will leave a bad impression of you on your lenders, getting them into thinking you are ‘hungry’ for the loan and need multiple loans to get by. Furthermore, several loan applications can have a negative impact on your credit score.
- Check Your Credit Score Before Applying
A credit rating is a major requirement for personal loan applications. A good credit score significantly increases your chances of your loan getting approved.
Before applying for a personal loan, it is a good idea to check your credit report for errors. Usually, minor errors adversely affect the credit score, such as wrong and closed accounts and incorrect credit limits. Credit agencies provide their customers with yearly credit reports and allow them to report any errors so that they can be corrected.
Credit scores range from 300 to 850; a score above 630 is considered fair while anything below it is considered a bad credit score, making you ineligible for several loans. If you don’t have a good credit score, you should take some time to improve your credit card rating before applying for a personal loan.
This is possible by keeping track of your expenditures and staying ahead of payments. Be vigilant and make your debt payments on time every month, and reduce your credit utilization. This would leave a good impression on the lenders, assuring them that you can pay your loan back on time.
- Find Ways to Reduce the Lender’s Risk
Lenders only approve loans that carry a level of risk that is within their acceptable limits. The higher the risk for the lender in granting you the loan, the lower your chances of approval. There are several ways you can reduce the risk of the lender on your loan:
- Place a down payment:If you are getting a loan to purchase a property or vehicle, consider offering a larger down payment. Lenders take into account the amount you are contributing to the cause. The greater your contribution, the greater your commitment to the cause. A sufficient down payment makes it easier to secure the loan and even get better rates and terms.
- Offer collateral: Collateral acts as security on the loan, as the lender can recover their money by selling the asset in case of a default. For this reason, secured loans tend to carry lower interest rates than unsecured loans.
- Have a defined purpose: A lender is more likely to approve loans that are for a defined purpose such as home improvement loans as they can asses the amount of risk attached to the purpose. Loans with no defined purpose tend to have lower approval rates.
- Have a Stable Income Stream
Securing personal loans becomes difficult, and in most cases,is almost impossible if you tend to switch workplaces a lot. Working for the same employer for at least six months before the application is an unspoken rule of the lending world. The lender needs to know if you have a steady source of income or not to be able to make the repayment on time.
If you do not earn a steady income from your current job, you can start a small part-time job to increase your chances of approval. A boost in income automatically improves your debt-to-income ratio. This is a ratio that measures the percentage of your monthly income that is used to make debt payments. It is an indication of your ability to manage debt payments from your existing income.
Usually, lenders are not very strict about debt-to-income ratios, but a good DTI shows that your debts are undercontrol and you can afford to take some more.
These are just some ways to increase your chances of getting your loan approved. Once you have made sure that you meet the criteria required by most lenders such as a good credit rating andDTI ratio, spend your time researching the different personal loan options as not every type would fit your situation. Go over the terms and conditions in detail before you apply to ensure you get the best personal loan for your needs. Good luck!