There are times when we need a large sum of money. However, not all of us have collateral such as property, car, or house to back up our application. A personal loan is hands down the best option in these scenarios. Unlike other types of loans, you have the flexibility to use it in multiple ways.
It bears worth mentioning that you must meet the lender’s requirements to receive a personal loan. Here are five simple ways to increase your chances of getting a personal loan.
- Get Your Timing Right
The sooner you begin planning for a personal loan application, the better. Preparing early allows you to build a relationship with the lender, which could increase your chances of getting the loan.
Additionally, a well-timed loan application can make you appear more attractive to lenders. If you think you will get a promotion in three months, for example, you may want to put off applying for a personal loan for the time being. The same stands true for credit scores. If you anticipate your credit rating is going to improve soon, you should hold back until the credit score marks an uptick.
- Determine The Right Loan
Since so many financial institutions in the country provide personal loans, you may have a hard time selecting the right loan. But the good news is that you can cherry-pick the ideal personal loan by evaluating certain factors. To begin with, ask yourself how much you need. Some lenders offer as little as a $500 personal loan. A fair share of potential borrowers does not ask for a large amount because they assume the personal loan affect on taxes could have a long-term impact on their life. Well, it cannot get any further from reality. Personal loans do not have any negative implications on taxes.
The duration of the loan is also another important consideration when selecting the best loan. Loan repayments begin within 30 days of signing the agreement. Typically, repayment terms range from six months to seven years for most lenders. Remember, the duration of your loan will affect both your interest rate as well as your monthly payment.
- Have A Look At Your Credit Report
To assess your repayment ability, most lenders will perform a credit check. Credit scores between 580 and 669 are normally required to get approved for personal loans. However, if your credit score is 670 or above, you have the best chance of being approved for a low-interest loan.
Make sure there are no mistakes in your credit report. If you notice any errors in your credit report, get in touch with the three major credit reporting agencies (Experian, Equifax, and TransUnion) to get them fixed.
Your likelihood of receiving a loan is not necessarily dismal if you are lagging behind your credit score. But fees and interest rates could be too high to make it a worthwhile deal. Therefore, you should consider improving your credit score before applying for a loan. To give you a better idea, we have put together reliable strategies to boost your credit score:
- Ensure timely payments: Having a long and constant record of on-time payments will help you attain high credit scores. For example, you must avoid missing credit card or loan payments by more than 29 days. Credit bureaus can penalize you if you delay the payment by more than 30 days. The best way to avoid this issue is to set up automatic payments for the bare minimum amount due.
- Boost your card limit: Open a new credit card or ask for an increase on your current card to boost your borrowing capacity. With a higher overall credit limit, your utilization rate will decrease. We will recommend you check your spending habits carefully before requesting an increase in your credit limit.
- Keep an eye on your credit utilization: When you divide the amount of available credit by the amount of revolving credit you have, you get your credit utilization rate. It accounts for a whopping 30% of your total credit score. The ideal credit utilization rate is under 30%. In other words, if your credit limit is $5,000, your usage should not go beyond $1,500.
- Stay On Top Of Documentation
Prepare all the necessary documents before beginning the personal loan application process. Since every financial institution has different requirements, reach out to your preferred lender and get a list of the documents you need to submit. In most cases, you will need to submit a completed personal loan application form, a photocopy of your valid ID, and proof of income. Depending on your lender, you may be required to submit additional documentation.
- Shop Around
Instead of accepting the first offer you receive, take your time to compare interest rates from various lenders. Credit unions, banks, and online lenders all offer personal loans. Consider checking with your bank or credit union first if you have had an account there for a long time. Usually, demonstrating that you have made wise financial decisions for years means that your credit union or bank will be more likely to overlook recent credit blunders or grant you a better rate.
Certain online lenders may also prequalify you after a soft credit check, which will have no negative influence on your credit score. See if the potential lender you are considering has a way to prequalify borrowers. On the other hand, non-prequalification lenders will often undertake hard credit checks as part of the loan application procedure.
- Show A Strong Track Record Of Saving
This is by far one of the most underutilized approaches. Saving money is a good strategy to demonstrate that you are financially responsible. Showing that you can set aside a certain amount of money each week or month indicates that you can make regular loan payments.
There is no one-size-fits-all method for securing a personal loan. Credit score and income requirements vary from lender to lender. Some lenders even ask for information such as education level and free cash flow. Despite all these differences, lenders share one thing; they want to be paid back on time. Thus, they only accept borrowers who fit their criteria. If you walk the tight line of the tips listed above, you will have little to no difficulty getting a personal loan.