Loan companies are big businesses. However, they won’t say yes to every borrower that comes their way. The reason being not everyone is qualified and capable of paying off a personal loan. Such companies have one thing in common: they will make sure you can pay back the loan – and on time.
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Why Apply For A Personal Loan?
People have different reasons for taking out a personal loan. More often than not, a massive number of borrowers use it to pay debts and fund other spendings. Typically, there is no restriction as to how you can use the funds. The following are the common ways borrowers use their personal loans.
- Aid in Starting a Business
- Consolidate Debt
- Car Purchase Financing
- Car Repair and Maintenance
- Cover Moving Costs
- Emergency Funding
- Fund A Vacation Trip
- Home Improvement Financing
- Major Purchase
- Pay Credit Card Debt
- Pay for a Funeral
- Pay for a Wedding
- Pay of Medical Bills
- Pay Off Taxes
How To Ace Your Personal Loan Application
If you need a personal loan, it is important to note that there are steps you need to take to avoid a loan rejection. These tips can help you increase the odds of getting personal loan approval.
Check Your Credit Score
Also known as your FICO score, it is a determining factor for lenders use to see how much of a good payer are you. The higher your three-digit credit score is, the better. Some online services offer free credit score checks, while others require you to pay a monthly fee to view it.
Once you know what your FICO score is, check with your preferred lender the minimum credit score, they allow borrowers to have for personal loans. If your score is below their minimum FICO score requirement, you can choose to improve your FICO score first before applying or find another lender with lower score requirements.
Check Your Credit Report
Your credit report can directly affect your FICO or Credit Score. Request for a copy of your credit report from major credit bureaus. You can do this for free once every year. Check any errors or discrepancies and if you see one, call the creditor and make a dispute.
Work On Paying Down Your Debt
When you have lots of debt, your Debt-To-Income Ratio goes up. Your DTI Ratio is your gross monthly income that goes straight to your monthly debt payments. The higher your DTI ratio, the more chances of personal loan approval. This is because it means you’re not capable of paying your monthly personal loan payments.
Start with your credit card balances. Doing so will not just lower your DTI ratio, it can also improve your credit score and reduce your Credit Utilization Ratio. Your credit utilization ratio reflects how much of the credit balance you use. The lower your credit utilization ratio, DTI ratio and the better your credit score it, the higher your chance for loan approval.
Good Read: Understanding Credit Utilization
Research For The Minimum Income Requirement
Not every lender has the same income requirement for personal loans. Make sure to check out different lender’s minimum income requirement to see if your monthly income is enough to qualify for a personal loan. You have the freedom to shop for lenders so don’t limit yourself on the first loan company you find.
Know The Minimum Employment Requirement
The minimum income requirement is not the only one you need to check. You also need to know their minimum employment requirement. Some lenders won’t consider other various income sources like benefits, child support, and freelance work.
It would be better if you’ve been working for a company so you’ll have bank statements showing you’ve been with them for a certain number of years. This way, your loan company will see you’re financially stable enough to pay them back.
Have A Collateral at Hand
There are loan companies who will require you a type of collateral to secure the loan. Having this one, like a source of liquid money or a piece of property, will always come in handy. Just make sure you’re confident you can repay them comfortably, or you can lose your collateral if you fail to pay the loan company back.
Have A Good Reason For Using The Personal Loan
While it’s true that have the freedom to use the funds for whatever purpose you wish, it would be best to have a good and justifiable reason to tell your loan officer on where you intend to use the loan.
Find A Cosigner Who Can Apply For A Personal Loan With You
If you fail to meet your requirements set by loan companies, you can ask someone to be your cosigner. This is someone who will agree to apply for the loan with you and is willing to pay the debt if you fail to repay your lender. It can be hard to find someone willing to do this for you, but if you do, consider yourself lucky.
Recommended Read: What Are Co-signers Liable & Responsible For?
Shop For Personal Loan Companies
You have the option to shop for loan companies that can offer you great personal loan deals. You can pre-qualify for financing if you wish to learn about their estimate rates and terms, provided you meet their minimum requirements. You can do this with multiple lenders, and it won’t have any impact on your FICO score.
Compare Rates and Terms
Different lenders will give you different estimates, so make sure to compare their pros and cons. Remember that your pick should be a reliable loan company who can offer the best rates and terms with costs and payments that is perfect for your budget.
Verify Your Details Before Sending In Your Application
Once you finally decided on a loan company, double check your details to make sure no errors are present. If you make a small mistake or a detail is missing, it can already cost your personal loan application.
There is no one surefire way to get a personal loan. Improve your chances of getting personal loan approval with these eleven easy tips.