Around 17 million Americans have taken on a personal loan in recent years. They’re often advertised as great options, with low interest rates and no collateral.
That doesn’t mean everyone gets approved for a loan, though. Lenders still routinely deny applicants loans for a number of reasons.
There is good news. You can increase your loan approval odds, and these five tips can help you do it.
1. Improve Your Credit Score
The first step to improving your loan approval odds is to improve your credit score. Loan applicants with poor or bad credit are less likely to become approved. Even those who have good credit may not qualify for the best interest rates.
Luckily, there are many steps you can take to improve your credit score. The first step is to make your payments on time. Simply making payments when they’re due is a large part of your score.
If you have unused credit, don’t worry about closing the account. Having unused credit sitting on your credit report actually improves your score.
Similarly, you may not want to take on new debt or make several loan applications at once. Each loan application can cause a temporary dip in your credit score, as lenders review your history.
Finally, be sure to download a copy of your credit report and comb through it for errors. Even a mistake that lists a closed account as active could be affecting your credit. Incorrect credit limits can also hurt your score.
You can ask creditors or collection agencies to remove a negative entry from your report. To do this, you’ll usually need to negotiate with them, which may include paying the debt off in full.
2. Pay Down Existing Debt
Before you apply for a personal loan, you may want to pay down or consolidate some of your existing debt. This move not only frees up capital, but it can help you improve your credit score.
People using a smaller fraction of their available credit usually score higher. If you’re using more than 30 percent of your existing credit, you should pay down some of your debt. Otherwise, you may not qualify for a loan.
Paying down debts can also help you by showcasing that you can make payments on time. It may also lower your financial obligations, which can help you budget more effectively. It may even free up capital that you need.
A personal loan might still have a better interest rate and allow you to merge existing debts. You may still want to apply, even if you can pay down or pay off debt.
3. Boost Loan Approval Odds by Shopping Around
You’ve done a lot to improve your odds of getting your loan application approved, but you’re still not sure. What can you do?
This next tip focuses less on your own personal financial situation and more on your lender. Who will you apply to for the loan?
Keep in mind there are alternatives to personal loans. You may want to consider a credit card. However, if you know a personal loan is the right option for you, take the time to shop around. Not all lenders are equal, and some may offer you better terms, especially the local community banks with the decisionmakers residing in the community.
Pick just one or two lenders and apply to them one at a time. Multiple queries on your credit file can cause a dip in your credit score. Using this strategy will help you land the best loan and keep your credit score high.
4. Consider a Co-Signer
If you’re unable to improve your credit score much over what you have now and you can’t get a higher salary, you might feel a loan approval is still out of reach. In that case, it’s time to call on your social network.
Ask a friend or relative if they’d consider co-signing for you. A co-signer is usually a person who has a better credit rating or a higher wage than you do. With their backing, the lender can feel more confident that the loan will most definitely be paid on time.
Keep in mind that finances can often strain even close relationships. You should trust the person you ask to co-sign, and they should trust you too. A good relationship is key.
5. Ask for What You Need
This final tip should help you get the loan approval for what you need. When you apply for a loan, it may be tempting to ask for more than what you need.
Resist temptation and ask just for the amount needed. Be sure to show the lender why you’re asking for this amount. You should be able to show them what you’d use the funds for.
Showing a concrete need for the funds makes the lender more likely to offer you a loan. They know exactly what the money is going toward, and they can see the need. If you ask for more than you need, they may be less inclined to approve the application because they feel the amount is excessive.
Get Approved for the Funds You Need
These five tips will help you boost your loan approval odds. Some of them are easy to use, while others may take a while to put into action. Try one or try them all the next time you need to apply for a loan.
If you’re looking for more great financial advice, be sure to check out more insightful articles from the experts. With the right information in hand, it’s easy to get the funds you need.