Personal loans provide one of the easiest ways for individuals to fund their expenses. You can use them for emergency medical bills, wedding expenses, renovations, or vehicle repairs. However, getting access to these loans requires some serious considerations. Most lenders will review your ability to repay the personal loan before approval. Here are a few top ways to improve your chances of personal loan approval.
Review the eligibility criteria required by lenders.
Different personal loan lenders cater to a variety of financial needs and circumstances. For instance, if you wish to apply for an express loan, you will find that some lenders have income or age requirements. To avoid any mishap of rejection for minor reasons, review the eligibility criteria lenders require. Ensure that the lender you choose meets your specific financial requirements.
Improve your credit score
Most personal loan lenders will look at your credit score before approving the loan. Note that the higher your credit score, the more likely you will get personal loan approval. Here are a few ways you can use to improve your credit score for personal loan approval:
- Make on-time payments on your utility bills and any other loans you may have.
- Review and eliminate any inaccuracies in your credit report.
- Avoid regularly closing or opening credit products, as it may impact your credit score.
- Aim for 30% credit utilization or less.
- Use credit monitoring tools to track your progress.
Evaluate your fixed obligation to income ratio (FOIR)
Using a high percentage of your income to pay other debts automatically reduces your creditworthiness. Lower creditworthiness will impact your ability to secure a new loan. Note that most lenders prefer borrowers with a FOIR of about 40% to 50%. Therefore, one of the most vital things you should do is pay off your credit card bills. You can also consider clearing out all your liabilities. A good FOIR indicates that you have the financial capacity to secure a personal loan.
Do not ask for more money than you require
Most lenders will view you as a risky borrower if you ask for more money than you require to attain your financial objectives. Therefore, make sure to calculate and evaluate your current financial position.
Determine the exact amount you need to achieve your financial goal before requesting a loan. Note that a high personal loan can limit your ability to meet other financial obligations, like auto loan repayments. You should also check your current income and liabilities, as they may impact your ability to get approval.
Include parents or spouse as a cosigner
A cosigner can be useful, especially if you have a low credit rating. If your co-signer’s credit score or income is higher than yours, adding the cosigner will increase your chances of loan approval. The improved chance of personal loan approval is because a cosigner adds to your repayment abilities.
The cosigner you choose to include in your loan application should be someone who agrees to pay the personal loan on your behalf if you default. Therefore, it is always good to choose someone you trust or who has trust in you, like a parent or a spouse.
Do not apply for too many personal loans at the same time
Most borrowers in need of fast cash tend to apply for too many personal loans from many lenders at the same time. This multiple application may give you hope of approval from at least a few lenders. However, it is not the best approach for a personal loan application.
Note that each personal loan application you make, the harder the inquiry on your credit report. The multiple applications will eventually lower your credit score, impacting your ability for personal loan approval. Therefore, avoid multiple personal loan applications simultaneously if you wish for a higher chance of approval.
Double-check your personal loan application forms
Any small mistake you make in the application process can reduce the chances of approval. Therefore, before submitting the loan application forms, review all information carefully. The review process will help to omit incorrect information. One of the best ways to conduct a form review is to double-check every single entrant that you made.
List all your income sources
As stated above, one of the most vital things lenders will check before personal loan approval is your ability to repay the loan on time. Therefore, it is always best to show the prospective lenders your financial capacity and ability to repay. Instead of listing basic income details only, include any other additional income that you may be earning. Adding any additional source of income will boost your chances of loan approval. It can also increase your eligibility for a higher loan amount.
Choose the right lender
In the market today, you will find that there are several personal loan lenders available. These lenders have different loan terms and payment requirements. Therefore, do not always go with the first lending institution you spot; conduct due diligence.
Some lenders will disclose their loan amounts, minimum credit score requirements, and ability to accept co-signers. If you find lenders with minimum requirements that you can meet, you can pre-qualify for the loan. Pre-qualification with several lenders will allow you to compare terms and rates. This comparison will help you choose a lender with the best loan option with payments and costs that are right for you.
Consider a long loan term
Going for a longer loan term means you will reduce the monthly installments you need to pay but increase the number of months you need to clear out the loan. However, it will help reduce your financial burden.
It will also increase the chances of you making timely repayments. Choosing a longer loan term option will impact your debt-to-income ratio. It will also increase the chances of obtaining personal loan approval as lenders view you as more trustworthy.
No matter how dire your financial situation is, conducting due diligence before a loan application is essential. It will improve your chances of getting personal loan approval and choosing the right lender who meets your specific financial requirements. Hence a seamless and stress-free experience in the loan application process.