Last Updated on 21/02/2019 by NM Staff
At some point in your life, you may need to take a personal loan. While there are plenty of lenders on the market, the requirements are quite different and it can be difficult to qualify for some credit if you don’t know how to go about it. Basically, no silver bullet guarantees your application is approved.
Lenders have evolved over time and while some requirements have changed, they are willing to work with people who can pay back on time. The truth is that no loan provider can assure you of funds when you apply. Nevertheless, the best thing to do is understand what it takes to get approved. The tips discussed here will put you a few steps closer to getting the funds you need.
Improve your credit scores
Today, the access to information has increased dramatically and credit reference bureaus maintain records of your financial history. When you are applying for a loan, the financial providers rely on your scores when making a lending decision.
There some errors that can hurt your score and it’s important to check the reports. For instance, closed accounts that seem to be open, erroneous credit limits, and wrong accounts can frustrate your efforts. You are entitled to get one credit report per year and with sufficient evidence to back up your claims, it is easy to file a dispute and have the errors corrected.
When you have outstanding debts, it is important that you develop a habit of paying more than the stipulated minimum payments. By doing this, you will improve the credit utilization ratio as well as the payment history. It is important to note that these two factors account for 65% of your overall score.
You can also ask your credit card provider to raise the credit ceiling. It will be easier to get an increase if your payment history is great as well as having more income than you had when getting the card. However, this can be disastrous if the provider performs a hard credit check so it is critical to ask before requesting the increase.
Consider your debt to income ratio
When making an application, you will be asked about your income. Basically, the debt to income ratio is determined by your total debts over your income. When this ratio is high, it implies that you have huge debts compared to your total income. To a creditor, this can be a compelling indicator of your financial difficulties and inability to manage personal debts.
Therefore, if most of your income is spent on debts, getting a personal loan at a competitive rate can be hard. Ideally, banks want to go into business with someone who can afford to service the loan. To be more specific, if more than 40% of your income is used on debts, then you might want to rethink your finances.
To improve your circumstances, consider negotiating for a pay rise in your current job or start a rewarding side hassle. If you have some assets that can be disposed of, you can use the money to eliminate debts with high interests.
In general, the chances of getting a loan application approved will be higher when you improve your earnings and debt to income ratio. Of course, there are some credit providers who don’t obsess over DTI requirements, but a lower score is always better since it demonstrates that you have things under control.
Provide collateral or find a relevant co-signer
If your FICO scores are not great, getting a cosigner with better scores and higher income can help you get approved quickly from nation21loans.com or a like service providers to find suitable lenders. However, you have to make sure that you find someone who can afford to bear the risk since they are expected to pay the money in case you fail. The best thing to do is to talk with your co-signer before they sign the deal.
When your application is backed by collateral, it becomes appealing to the financier. Normally, you will need an asset that has significant value in the light of the funds you need. For example, when you want to buy an expensive house appliance, you can use your vehicle as the security.
Avoid asking for too much money
By asking for more funds than required, you are telling the lenders that you are a risky borrower. Instead, determine the amount you need to achieve your objective and ask for the exact amount. On the other hand, getting more than the necessary amount can introduce financial hardships down the line.
Always remember that you will have to pay what you borrow. Therefore, you shouldn’t be tempted to take an amount that will overwhelm you when making the monthly payments. At times, adding a few hundred dollars over what you truly need can deny you the chance of getting funded altogether.
Choose the lenders carefully and wisely
There are tons of lenders out there and you can improve your chances of getting funded by choosing the most appropriate creditor. If your scores are not perfect, there are some financial providers who are willing to offer small amounts of money and work with you to repair the scores.
If you are not sure where to start, try talking with people who have borrowed before. Ideally, it is best to consult someone who was in a similar situation. Additionally, you can look up online reviews to get a feel of the experiences people have had with a certain provider.
After you have done thorough research, feel free to contact the lender with any question before making up your mind. Most importantly, try to filter out lenders that don’t work with people whose FICO scores are outside your bracket.
Truth be told, there is no way to guarantee your loan request will be approved. However, you can navigate the common pitfalls that result in rejections by following the points discussed here. Most importantly, compare your options carefully to determine financial providers who are likely to offer you some funds.