How to Improve Your Chances of Personal Loan Approval?
Getting a personal loan is open to anyone on the credit spectrum for whatever purpose they wish. However, not everyone gets approved for loans. A 2018 Yahoo Finance article titled ‘The Reason Why Most People Get Rejected for a Personal Loan’ found that 76% of applicants are declined. One of the biggest reasons for this is a low credit score.
Unfortunately, most people aren’t aware of this and the other qualifications for getting a loan. Our post ‘Importance of Financial Literacy Education in High School’ mentions that financial literacy programs provide students with skills like debt management. However, we also noted that education systems often leave it out of the curriculum. If you plan on applying for a personal loan soon, here are a few things to remember.
Don’t ask for more money than needed
Loan sizes depend on the lender. Some offer as low as $1000, while others can reach a maximum of $100,000. Even so, this doesn’t automatically mean you can borrow any amount. Lenders will be skeptical and reject your application when your loaning reasons don’t match the amount you’re applying for. An example is getting a $20,000 loan for a short vacation at a non-luxury destination.
Before applying for a personal loan, estimate the amount you’ll need. If you’re using the loan for a house, research the house’s cost and other real estate fees you need to cover. Giving lenders an estimate of your expenses may increase the chances of loan approval.
Build your credit score
Lenders will approve loans when they see that you’re financially responsible. One way they’ll know if you qualify is through your credit score. Sound Dollar notes that personal loan eligibility depends on whether or not you can pay bills on time. If you do, lenders can rest assured that you’ll display the same behavior for your loan.
A high credit score of 750 or higher is attractive to lenders. To reach this score, consistently and punctually pay your bills. Another way to raise your credit score is by avoiding reaching your credit limit. This ensures a good credit limit-to-balance ratio, meaning there’s no significant difference between your available credit and existing debt.
Space out your loan applications
Applying for several loan applications within a short period makes lenders doubt your ability to repay the personal loan because you have so much on your plate. The University of Washington reports that hard inquiries affect your credit score for up to two years. A hard inquiry is when a lender checks your credit score and history before a loan application. It raises your score because it’s a sign of credit hungriness.
A good practice is to have at least six months between loan applications, especially if they’re for non-urgent purposes. This increases lenders’ confidence and your chances of personal loan approval.
Get a co-applicant
If you’re still doubtful of your approval chances despite doing the tips above, it’s time to get a co-applicant. Additionally, Yahoo! Finance reports that interest rates are rising due to inflation, making it harder to pay loans on your own.
A co-applicant is another person—a spouse, friend, or relative—involved in your loan application. Both of you will be responsible for paying the loan, increasing your approval chances. Whoever you choose, make sure they have good qualifications for a personal loan. They must have a high credit score to supplement yours, and they ideally should not have multiple current loans.
Personal loan approval is not always guaranteed. To increase your chances, ask for a sufficient amount, improve your credit score, space out your loans, and consider getting a co-applicant.