Need a fast loan and worried you’ll be rejected?
Personal loans can be a quick and easy way to pay for unexpected expenses or consolidate debt. With 24.8 million Americans already taking out personal loans, you’re certainly not alone.
But here’s the problem:
It’s not always so easy to get approved. In fact, 11% of applicants get rejected due to their credit score, credit history, or income.
The good news is…
There are a few simple things you can do to improve your odds of getting approved. If you’re interested in quick online loans, being able to show lenders what they want to see can be the difference between getting approved and getting rejected.
In this guide, I will show you exactly how to increase your chances of being approved for a personal loan.
Here’s what you’ll learn:
- What Lenders Actually Look For
- Simple Ways To Improve Your Credit Score
- The Debt-To-Income Ratio Trick
- How To Choose The Right Loan Amount
What Lenders Actually Look For
The number one question I get asked about personal loans is “What can I do to get approved?”
The secret to getting approved isn’t complicated.
Loan lenders aren’t out to make your life difficult — they just want to know that you’re a responsible borrower who can repay your loan.
Here are the three most important things they look for:
- Your credit score
- Your income
- Your debt-to-income ratio
Your credit score indicates how you’ve handled money in the past. Your income is necessary to show that you can afford the payments. Your debt-to-income ratio indicates whether your monthly debts are higher than your monthly income.
If your credit score ranges between 600 to 700, you have a 65% chance of approval. Now if you manage to increase your credit score above 700, then your odds will increase up to nearly 90%.
Can you see the difference? Simply increasing your credit score above 700 can increase your odds by 25%.
The average personal loan borrower has a credit score of 685. It goes to show that you don’t need excellent credit to get approved. You just need to make yourself a desirable borrower.
Simple Ways To Improve Your Credit Score
Your credit score is the single most important part of your loan application.
But how do you get a higher one? Here are the proven strategies that can actually work…
Check Your Credit Report For Mistakes
This one is an absolute no-brainer.
Go to AnnualCreditReport.com and order your free credit report. Carefully check for:
- Accounts that don’t belong to you
- Wrong balances
- Duplicate entries
- Old debts that should have been removed
If you notice any errors, dispute them right away. It can take up to 30 days to process, but it will be worth it.
Pay Your Bills On Time
Payment history makes up 35% of your credit score.
It’s the biggest factor by a wide margin. Set up automatic payments to ensure you don’t miss another due date. One late payment can destroy your score.
Reduce Your Credit Card Balances
High credit card balances can really damage your score.
Prioritize paying off your credit cards before you apply for your personal loan. It will lower your credit utilization ratio, which lenders take a close look at.
The lower your credit card balances, the more favorable you look to lenders.
The Debt-To-Income Ratio Trick
Here’s a little secret that most people don’t realize…
Your debt-to-income (DTI) ratio can make or break your personal loan application. Most lenders want to see a DTI of less than 36%, although some may accept up to 50%.
Here’s how to calculate it:
Add up your total monthly debt payments, then divide by your gross monthly income. Multiply by 100 to get the percentage.
Say you have $1,500 in monthly debt payments and your monthly income is $5,000. Your DTI is 30% which is great!
To improve your DTI, you have two options:
- Increase your income (extra hours, side hustle, raise)
- Decrease your debt (pay down credit cards, consolidate, pay off small debts)
The lower your DTI, the better your application looks to lenders.
How To Choose The Right Loan Amount
Don’t fall into this common trap…
One of the biggest mistakes I see people make is applying for more money than they need. It hurts their chances of getting approved, as the higher the loan, the more risk for the lender.
Figure out how much you need, and only ask for that amount. The more you borrow, the more interest you’ll pay. It also makes it more difficult to get approved.
Ask for only what you need to cover your expense. Use a loan calculator to get an estimate on your monthly payments. Only borrow if you can comfortably fit the payment in your budget.
Why Prequalification Is Important
Want to know if you’ll get approved before applying?
Prequalification is the answer. Most lenders allow you to prequalify with a soft credit inquiry that doesn’t hurt your credit score.
Each time you submit an application, lenders do a hard inquiry on your credit. Too many hard inquiries in a short time can lower your score.
With prequalification, you can shop around for the best loan with no risk. Get prequalified by multiple lenders and compare their rates and terms.
Consider A Cosigner If Necessary
Having trouble getting approved on your own?
A cosigner with good credit can make a big difference. Lenders will take their credit score and income into account along with yours.
Just be sure that your cosigner understands what they’re getting into. They are just as responsible for the loan if you can’t make the payments. Make sure it’s someone you trust, such as a family member or close friend, who has a strong credit score and steady income.
Wrapping Things Up
Getting approved for quick personal loans is not as hard as most people think.
The biggest thing is showing the lenders that you are a reliable borrower who can pay back your loan. Improve your credit score, lower your debt-to-income ratio, and only borrow what you need.
The key takeaways are:
- Check your credit report and correct any mistakes
- Pay your bills on time to build positive payment history
- Keep your DTI below 36% for the best odds
- Prequalify with lenders to compare offers
- Only borrow the amount you actually need
With these tips, you can drastically improve your chances of getting approved. Start working on your credit and DTI today and your future self will thank you when that approval letter arrives!
Other Articles
Maximizing Profits with Advanced Crypto Trading Strategies
