A personal loan is a great way to get the money you need to buy a new car, pay for college, or fix your house. But before you apply, make sure you follow these tips to improve your chances of getting approved.
What is a personal loan?
A personal loan is a loan that you take out from a bank or other financial institution to help you purchase goods or services. The loan is usually unsecured, which means that the lender does not require collateral in order to grant the loan. Personal loans can be used for a variety of purposes, such as purchasing a car, paying off debt, or starting a business.
How to improve your chances of getting approved for a personal loan
Step 1: See if you’re prequalified
If you’re interested in getting a personal loan, it’s good to know whether or not you’re prequalified since that will save you time, effort, and hard pulls of your credit report. Prequalification means that your credit score and finances meet the lender’s standards. Lenders will typically give personal loan pre-approval offers to those with excellent credit or a good history with the lender.
Step 2: Check your credit score
Before applying for a personal loan, it is essential to check your credit score. Your credit score is a number that reflects your credit history and can help you get approved for a loan. A good credit score means you are likely to pay back your loans on time and will face lower borrowing costs. To get your free credit report, visit www.annualcreditreport.com or call 1-877-322-8228.
Step 3: Lower your debt-to-income ratio
One of the best ways to improve your chances of getting approved for a personal loan is to reduce your debt-to-income ratio. Your monthly debt payments, should not exceed 30% of your monthly income. Keeping your debt-to-income ratio below this level will make it much easier for lenders to approve you for a personal loan.
Step 4: Be prepared to show proof of income
When applying for a personal loan, be prepared to provide documentation of your income. This could include pay stubs, recent bank statements, or other proof of your income. If you’re not sure what to provide, contact the personal loan company for more information.
Step 5: Consider offering collateral.
Offering collateral can increase your chances of getting approved for a personal loan. Collateral can include things like a car, house, or other valuable assets. It’s important to choose the right type of collateral to offer, as not all assets are eligible. If you don’t have any assets to offer, you can try to find a lender that will approve you regardless, but your interest rate may be higher, especially if you have a low credit score.
The bottom line
If you follow these tips, you’ll have a better chance of getting approved for a personal loan.