There is no one-size-fits-all formula for getting a personal loan approved. Credit score and income requirements vary by lender, and some online lenders take into account nontraditional data such as free cash flow or education level.
Loan companies, however, all have one thing in common: they want to be paid back on time, which means they only accept borrowers who meet their criteria. Here are four ways to help you apply and get approved for a personal loan.
Boost Your Credit Score
On personal loan applications, credit scores are a significant factor. The higher your score, the better your chances of being approved. Make sure your reports are free of errors. According to the Consumer Financial Protection Bureau, common mistakes that can harm your credit score include wrong accounts, closed accounts reported as open, and incorrect credit limits.
Dispute any mistakes you find in your credit reports online, in writing, or over the phone with evidence to back up your claim.
Re-establish a Healthy Debt-to-income Ratio
You should include money earned from part-time work in your annual income when applying for a loan. Consider starting a side business to supplement your income or pursuing a promotion at your current job. Also, do all you can to reduce your debt.
Your debt-to-income ratio, which is the percentage of your monthly debt payments divided by your monthly income, increases when you maximize your revenue and reduce your debt. Although not all lenders have strict DTI requirements, a lower ratio indicates that you have control over your current debt and can take on more.
Make Sure You’re Not Asking for Too Much Money
Lenders may view requesting more money than you require to achieve your financial goal as risky.
Examine the reason for your loan request, determine a reasonable dollar amount to that need, and only ask for that amount. Higher loan payments affect your ability to meet other financial obligations, such as student loans or mortgage payments, when you take out a larger personal loan.
Consider a Co-signer
If your credit score is in the “fair” range, getting a co-signer with better credit and income will help you get approved. As the co-signer is equally responsible for the loan’s repayment, choosing a co-signer who can afford the risk is crucial. Before agreeing, have an open and honest discussion with the potential co-signer to ensure that they are fully aware of the risks involved.
