The loan approval process can be daunting, but you can improve your chances of approval by being proactive. There are many elements lenders look at when considering a personal loan application, and if you can improve your odds in some key areas, you will be more likely to get the money you need.
Learn how to boost your chances of getting your personal loan approved using these tips.
Make Sure You Have a Good Credit Score
Before you start applying for personal loans, it’s essential to check your credit score to ensure you don’t have bad credit. Ideally, your score should be in the Good to Excellent range. Your credit score is an essential factor a lender looks at when deciding how much money to offer you. A credit score is considered good if it’s between 670 and 739.
Review your credit report for inaccuracies
You can get free copies of your credit report from each of the three major credit bureaus every year. The three bureaus are Experian, Equifax, and TransUnion.
According to the Consumer Financial Protection Bureau, numerous errors in your credit report can hurt your score, including incorrect financial records, closed accounts reported as open, and inaccurate credit limits.
After completing an investigation, consumer reporting agencies must notify you of their findings within 5 business days. They typically have 30 days to investigate a reporting error after becoming aware of a problem.
However, the credit bureau has 45 days to investigate your dispute if you submit it after getting your free annual credit report. If you provide additional relevant information to your dispute within the 30-day investigation period, the bureau has 15 additional days to continue investigating.
If your dispute is successful, the law requires that the business that provided the incorrect information must submit the corrected information to each credit reporting agency to which it supplied the wrong information. You will receive a free copy of your updated credit report.
Stay current with your payments
Your potential lender also considers your payment history. You must pay all your bills on time and make regular payments on all your debts.
Try to pay more than your minimum credit card payments whenever feasible—paying more than the minimum benefits your payment history and credit utilization ratio (CUR). Your CUR makes up a percentage of the total credit limit you’re using.
For most lenders, someone who frequently charges the maximum amount on their credit indicates a risk. A high CUR worsens your chances of loan approval because you are more likely to have trouble paying the amount back than someone who spends more responsibly within their credit limit.
Your payment history accounts for 35% of your FICO score, and your CUR is 30%.
Adjust Your Debts and Income
Your debt-to-income ratio (DTI) is another aspect that lenders must consider during the approval procedure. Your (DTI) ratio is the percentage of your monthly debt payments compared to your monthly income. A low ratio shows you have managed your current debts and can now take on more.
Lenders generally do not want to approve borrowers with a DTI above 43%. However, if you’re in a situation where you’re close to this ratio, you can improve your chances of loan approval by increasing your income or paying down your debts.
If you have outstanding debts, you can still be approved for a personal loan, but try to manage those debts before submitting your application.
Submit a Realistic Application
To boost your chances of loan approval, find out in advance how much you may qualify for based on your current income, credit score, and DTI. When the loan value you’re seeking is realistic for your financial situation, lenders are more likely to feel comfortable approving your application.
There are excellent personal loan calculators available online to help you determine the size of a loan you qualify for based on your existing student loan debt and other financial factors.
Think About Your Loan Term
Your financial standing may not change much in a year or two, but your circumstances could shift dramatically over ten years. For this reason, lenders are often willing to approve a short-term loan because you are committed to paying it back fast.
A shorter loan term can save you money in the long run because you’ll pay less interest on the amount overall. However, because you’ll have to make a larger monthly payment, you need to make sure you budget for this cost.
Consider a Co-Signer
If you don’t have a good credit history or need a larger loan amount, a good option is to have a co-signer. Most personal loan providers rely on co-signers’ qualifications when deciding to grant a loan. Co-signed loans are also less risky for lenders since someone else is committed to paying back the money you borrowed if you cannot.
Pick the Right Lender for You
When you’re applying for a loan, especially a personal loan, it’s crucial to pick the right lender for you. Different lenders cater to various borrowers.
Those with excellent credit qualify for loans from some lenders, while those with less than perfect scores can qualify for a personal loan from lenders like credit unions that take a more holistic approach.
Almost every borrower can locate a suitable lender if you shop around. Check online reviews and the lender’s website to learn about their approval requirements, terms, and interest rates. Speak to representatives from multiple lenders to see where you can get the best interest rates.
Move Toward Getting Approved for Your Personal Loan
If you’re looking to apply for a personal loan, it is vital to do everything you can to boost your chances of getting approved. By understanding what lenders are looking for and taking steps to improve your credit score and financial stability, you can put yourself in a much better position when it’s time to apply.
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Disclaimer: All content on this site is information of a general nature and does not address the circumstances of any particular entity or individual, nor is the information a substitute for professional financial advice and services.