How to Improve your Chances of Getting Approved for a Loan
Getting approved for a loan can be a critical step in achieving your financial goals. Whether you want to buy a house, buy a car, start a business, repay debts, or finance a dream, chances are you’ll need a loan. Sometimes, the process of getting a loan can seem opaque or scary. We’re here to provide practical strategies to help you get approved.
Every lender wants to know that you can repay your loan; so they always consider your Debt Service Ratio, which is calculated by dividing your monthly debt by your monthly income. If your debt is more than 35% of your income, you won’t qualify for a loan since your existing commitments mean you may not be able to repay it. By keeping your borrowing under control, you’re more likely to get loan approval when you really need it.
Build Your Credit
By building your credit score, you’re proving that you’re financially responsible. If you have a credit card, try to repay your balance in full and on time. If you have bills or existing loans, do your best to always pay punctually. You can even set up automatic payments to ensure that you meet your obligations.
Maintain Stable Income
Maybe you have a permanent job. Or maybe you run a successful business. You may also have other sources of income, such as investments or a side hustle. Whatever you do, proving that you earn money regularly will boost your chances of approval.
Ensure that you have Loan Security
Some lenders offer unsecured loans – that is, loans where you don’t need any collateral – but these often have higher interest rates and can therefore cost more in the long term. Getting a secured loan – and lower interest rates – is a smarter financial decision. Several items can act as loan security, such as fixed deposits, life insurance policies, shares, or property. You may not be able to get all these items overnight, but you can acquire them over time. These items also have benefits that extend far beyond loan security; so you’ll also be building a better financial portfolio.
Lenders offer different terms and interest rates and they may also have different requirements for loan qualification. Research all lenders to determine which one seems most likely to approve your application.
Apply for the Right Amount
Maybe two million dollars will solve all your problems. But that doesn’t mean you should apply for a two-million-dollar loan. To determine how much you can borrow, lenders consider factors like your income, existing debts, credit score, and age. It’s a good idea to use a loan eligibility calculator or to speak to your lender to ensure you apply for the right amount.
Check & Doublecheck your Application
Once you’ve selected a lender, ensure that your application meets all their requirements. Requirements vary depending on the type of loan, but many lenders ask for forms of identification, proof of address, proof of income, a bank statement, and a credit report. Don’t get denied just because you were careless!
Ask a Friend or Family Member to Co-sign your Loan
Maybe you’re reading this blog post with increasing worry because you don’t think you’ll qualify for a loan. If there’s someone you trust, you can ask them to co-sign the loan. If that person agrees, they’ll be doing you a HUGE favour. We suggest you repay them by repaying your loan promptly, so that they won’t be stuck with your bill.
And remember, this blog post is just the beginning. If you have any questions, you can always speak to people you trust who have successfully applied for a loan. Ask who their lender was and what their experience was like. You can also reach out to a financial advisor for help.