How To Improve Your Chance To Get Approved for a Loan

Improve Your Credit Score

Your loan approval will be significantly determined by your credit score. If your credit score is less than 600, you may need to find ways to increase your score.

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:

These are keys to be aware of when trying to improve your credit score. Remember, the higher your score, the better your chances of getting a loan approval. 

Want to improve your credit score? We have put together 8 actionable ways to do it – read it here.

Balance Your Income vs. Debt Ratio

When you apply for a loan, lenders will ask for proof of your annual income and often a breakdown of your debt. Your debt-to-income ratio is a percentage calculated by taking 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 debt-to-income ratio has changed. The lower your debt percentage, the better your chances of getting a personal loan.

Have a Plan for the Loan

Knowing how much you need to borrow before you are approved for a loan is essential. Having a plan of what the money is for beforehand is important. This will keep you from getting into an unnecessary debt cycle from buying things you do not need. It will also make looking for a loan easier and improve your chances of getting approved for a loan.

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 default your loan payments.

Consider a Cosigner

If you have relatively good credit and want a loan for a significant amount, consider a cosigner.

Cosigner loans can help in many situations such as when you need to consolidate your high-interest student loans, need help on 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 that 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 default the loan payments, it is 100% on them to pay that loan back.