How To Improve Your Chance To Get A Personal Loan
Getting denied by a lender when applying for a loan can be really damaging to your credit score. If your credit score has suffered, getting a new personal loan will be even harder than before.
We have put together a list of ways to improve your chance of getting a personal loan approved.
1. Improve Your Credit Score
Your loan approval will be significantly determined by your credit scores. If your credit score has suffered and you need a personal loan with a 600 credit score or less it may be time to find ways to increase your number.
Lenders take a serious look at credit scores to assess whether or not you are capable of paying back debt. They view your credit score as a window into your ability to manage money.
Your credit score is made up of your:
- credit history
- debt to income ration
- payment history
- credit diversification
- credit frequency
These are keys to be aware of when trying to improve your credit score as the higher your score, the higher the chances of getting help with a personal loan.
How to improve your credit score? We have put together 8 actionable ways to up your score. Find out more here.
6 Steps To Improve Your Credit Score
- Pull your report for free
- Check for any errors and fix
- Keep on top of your payments
- Set up automatic payments for bills
- Merge small high-interest loans into a consolidation loan if needed
- Consider increasing your credit limit if you have low lending available to you
1.1 Pull Your Credit Score
💡 Tip: Once a year, you can pull your credit report for free through AnnualCreditReport.com. Certain online banks will also offer free credit report checks through their online login.
Once you have your credit report go through it with a fine-toothed comb. You want to look for discrepancies or errors. It’s also a great place to start to really become aware of the way that you personally interact with money. It is like getting on the scales; it can be a bit of a reality check.
Look for any areas that could do with some improvement and work on those. If you find you are not paying your bills on time, consider setting up automatic payments. Within a few months, your credit will begin to improve.
1.2 Diversify Your Lending
If you find that you, your credit diversification is a limited attempt to pay off any small loans that you have multiple of. If you have 4 credit cards and one personal loan, that could prevent you from having a good credit score.
It implies you do not manage your money well and keep needing to borrow in the same way. It is a bit of a crock, really to be honest. If you have 4 low limit credit cards, they may reduce your credit score, whereas, if you had one higher limit credit card, that might be beneficial.
1.3 Consolidate Your Debt
So let’s say you have 4 low-limit credit cards. Consider shopping for a consolidation credit card that you can transfer any money owes and close your other cards. This will do some initial damage to your credit score; however, over a few months, it will improve.
How long does it take to get a personal loan? Well, if you need money today, consolidation lending is not the best option, but if you can wait, it is recommended. The higher your credit score usually, the lower your lending rates will be. Consolidating your higher interest personal loans can help you pay down principal faster.
On that note, if you consolidate your credit cards or loans into a lower APR consolidation loan, you can also consider increasing your credit limit. This is like getting a personal loan to pay off your credit card debt.
The dangers of increasing your credit limit go without saying, but just so I can sleep at night in my attempt to be an honest person ill say it anyway.
Don’t borrow more than you need to! Getting into unnecessary debt will harm your financial future. Borrowing money isn’t a bad thing; in fact, leveraging can open doors to many great financial opportunities. Make sure that what you are borrowing has a purpose.
Ok, I’ve said my piece, back on topic.
2. Balance Your Income vs. Debt Ratio
When you apply for a loan, they are going to ask for proof of your annual income and often a breakdown of your debt. Your debt to income ratio is the percentage of your monthly debt payments divided by your monthly income.
Check to see if your income has increased since your last loan. If it has, then your income to debt ratio has changed. The lower your debt percentage is of your income, the more chances of getting a personal loan.
If your income has not increased, consider getting a second job or a side hustle. A couple of hundred dollars a month makes a huge difference to the ratio. It will also alleviate the pressure of repayments by having more disposable income.
How To Get The Best Rates On A Personal Loan
- Get your credit score as high as possible
- Increase your income vs debt ratio
- Get a plan for your loan
- Get a cosigner
- Shop around
If your debt to income ratio is too high and you are not in a position to get a new job, then consider trying to pay down some of your small debts. Getting money instant can be done by selling off lower performing investments such as stocks or if you don’t yet have an investment portfolio.
Consider selling things around your house you don’t need. No, stop it. I’m not talking about your partner. I’m talking about that mountain bike you were going to use last summer. It’s sitting beside that kayak that got used once and is now taking up space in the garage as a giant, plastic reminder that you sometimes don’t think things through before spending.
Oh, wait, my apologies. I may be subconsciously referring to myself. This could be the reason I have three dogs! Again, I digress.
3. Have A Plan For The Loan
Knowing how much you need to borrow once you are approved for a loan is essential. Having a plan of what the money is for will prohibit you from getting into an unnecessary debt cycle for things you do not need. It will also make looking for a loan easier, improving your chances of getting approved for a loan.
Keep your loan term as short as possible. Once you know how much you need to borrow, work out how long it will take you to pay back your loan.
Lenders prefer shorter payback periods as there is less chance that your circumstances will change. It also increases confidence with the lender that you will not fault your loan payments.
4. Consider A Cosigner
If you have relatively good credit and want a loan for a significant amount, consider a cosigner.
Cosigner loans can help when you need to consolidate your high-interest student loans or a business loan, or when applying for your first home mortgage.
If you have someone close that has good credit that trusts you to commit to the repayment of a loan, you may be able to get a much better interest rate. Banks and lenders are big fans of consigning, as there are now two incomes backing the one loan.
The consigner is basically the insurance than someone with good credit, and an income is going to pay this loan back. A cosigner increases your creditworthiness big time!
Obviously, there needs to be a disclaimer here that asking someone to cosign for you is a big deal. If you fault the loan payments, it is 100% on them to pay that loan back.
So make sure you are only borrowing what you can payback. Ensure that you don’t take for granted what that person is willing to do and confirm that they are comfortable with the whole process. It’s a massive ask!
5. Get The Right Lender
If you have read any of our blogs, you will know that we at financer.com want you to find the best lender available. By that, we mean a credible lender that will lend you just enough money to get you where you need to be at a rate that is the most competitive possible.
- Credible Lender
- Lending limits to suit your needs
- The lowest fees possible
Shop around and compare lenders through our online lending tool. The online lending industry has boomed, which means more competition. This is great for borrowers as interest rates, APRs and fees are always improving.
If you want even more significant loan amounts, consider going to see your bank or credit union. But make sure you compare their APRs with online lenders in your state as well.
>>Want to find the cheapest places to borrow money? Check online lenders here
- Online Lenders
- Credit Unions
Finding a lender to suit your needs can be exhausting. That is why we have created a unique online comparison tool that allows you to compare multiple lenders at once.
Take a look around our site, let us know your personal loan experiences and comment below.