There are no universal rules when it comes to getting approval for a personal loan. Some lenders require a certain amount of income and credit score, while others consider other factors such as education level and free cash flow.
One common factor that loan companies have in common is their desire to get paid back on time. This means that they only approve those who meet their requirements. According to the experts at SoFi, “A personal loan is a borrowed sum of money that is paid back with interest in installments.” When you apply for a personal loan, follow these tips to help your chances of qualifying.
1. Clean Your Credit Up
Your credit score is an important factor that loan companies consider when it comes to assessing your chances of getting approved for a loan. One of the most common errors that people make on their reports is reporting their accounts as closed. This can affect their score.
If you’re not already aware of this, make sure that you regularly pay off all of your debts. Doing so will help boost your credit utilization ratio and payment history, which are two of the factors that make up a person’s credit score.
2. Balance Your Debt and Income
Your annual income should be included in your loan applications, as it’s your responsibility to provide it. If you’re working a part-time job or looking to raise your salary, this can help boost your income and give you a better chance of approval.
Lowering your debt-to-income ratio can also help boost your chances, as it shows that you’re managing your finances well and can take on more debt. Not all lenders require a strict DTI, but a lower one can help prove you can take on more debt.
3. Don’t Take Too Much Cash Out
Getting a loan for more money than what’s required to reach your financial goals can be considered risky by lenders. A larger loan can also affect your budget as it increases the amount of money that you have available to spend. This is why it’s important to use a personal loan calculator to estimate the monthly payment before you decide the amount you want to apply for.
4. Consider Using a Cosigner
If you don’t have good credit, having a co-signer with a strong credit score can help boost your chances of getting approved for a loan. Even if you’re planning on repaying the loan, it’s important to remember that unforeseen events can affect your ability to pay it back. This is an important factor to discuss with any potential cosigners. If you cannot pay your debt, they will have to pay it.
5. Find a Good Lender
Online lenders often disclose their minimum credit score and annual income requirements. They also provide co-signer options. Pre-qualified people can get a personal loan if they meet certain minimum qualifications and are looking to see an estimated rate and terms. With most lenders, pre-approval triggers a soft credit pull, which does not affect your credit score.
The key to improving your chances of getting approved is keeping your financial situation in decent shape. Lenders just want to be sure you have the means to pay back any money you borrow.