Whether you are looking for a personal loan for the very first time and want to know how to increase your chances of approval, or lenders have previously refused you, there are plenty of ways you can increase your chances and get the loan you need.
If you’ve been turned down for a loan in the past, it doesn’t necessarily mean you can’t get one in the future. A bad or limited credit history, asking for an unreasonable amount, or even something as easy as making a typo on your loan application are all common causes for a loan application being rejected. Read on to find out more.
Check Your Credit Score First
When you apply for a loan, one of the biggest reasons why you might be denied the money you’ve asked for is if you have a bad credit score. If this is the case, a lender might assume you’re unable to handle money well and be concerned that you won’t pay back what they lend you. To understand this, they will check your credit report, which goes back six years and includes everything from credit cards to mortgages.
Before you apply for a loan, take a look at your credit report. If the score is low, don’t apply for a loan with standard lenders, as you’ll likely be rejected. Instead, you could try applying for a bad credit loan. These are specifically designed for people in your situation and can actually help improve your credit as long as you make the repayments. These loans do often have a higher interest rate, however, so do bear that in mind.
Don’t Ask for Too Much
A loan works by a lender giving you a certain amount of money, and you pay back a specific amount each month until the loan is repaid. This repayment amount will consist of the loan itself, plus any interest and fees that might have accumulated. When applying for a loan, your ability to repay the money is a hugely important element of whether or not you’ll be accepted.
Even if you have a great credit score, it doesn’t mean you’ll be guaranteed to be accepted if you ask for too much money. The lender will do the math, and if what you are asking for is going to be more than your income, or leave you without enough money to pay for utilities, groceries, your rent or mortgage, or other essential items, then they won’t lend. Use an online calculator to find out how much the loan would cost you, and if it’s too much, you might need to ask for a little less (or a lot less in some cases).
Although you might not think it’s anything to do with borrowing money, your employment history does play a part in the decision-making by a lender. If, for example, you have been working in one place for a number of years, then you are seen as a more stable person when it comes to your income and a safer option for lenders. Conversely, if you change your job frequently, or you’re self-employed or a freelancer, then you may find problems when it comes to getting a loan, even if, as Lifehack says, there are many reasons to be self-employed.
To combat this issue, having a guarantor in place can help. A guarantor is someone who will promise to pay the loan if you are unable to.
Make Yourself As Attractive To Lenders As Possible
You can do a few things to make yourself more appealing to lenders. This includes:
- Paying off current debts
- Demonstrating that you have a steady income that can support loan repayments and other living costs
- Demonstrate your good credit history
If you don’t need the money you’re borrowing immediately, the best thing to do is to concentrate on paying down any outstanding debts and borrowing as much as you can before you apply. Even if this delays you by a few months, you’ll be in a much better position, both personally (since you’ll have fewer outgoings) and in the eyes of a lender who will be able to see that you’re managing your debt sensibly and that your income is enough to service your current borrowing.
Compare Your Options
It may be tempting to just go to your bank’s local branch and speak to them about borrowing the money you need, but there are other alternatives that may be less expensive and more suited to you. This is why it’s important to investigate various lenders to see what they have to offer. Some might have special deals, or some types of loans might be better for you than others.
Although shopping around is crucial, you must be careful when you do it. Don’t leave too many inquiries (hard searches or applications) on your credit report since this can give you a bad record and may harm your credit score. Many lenders and brokers provide loan calculators, allowing you to quickly see what your repayments would be if you borrowed various sums (over different terms and with different APRs). This is a much better option than applying for lots of different loans all at once.
What Reason To Give?
There is no ideal reason you can put on an application to ensure you get a personal loan. Lenders are generally more concerned with your ability to repay the loan and your previous trustworthiness when borrowing money rather than the purpose of the loan.
The most important thing is to be truthful; most people take out loans to pay for things like a wedding, home renovations, or a car, so let them know your personal reasons. This is not an issue, even if you feel it’s perhaps somewhat silly or extravagant. If you want the money and can repay the loan, you can effectively use the money for anything at all, and there are no ‘silly’ reasons.
However, the lender will not give you a loan if you intend to use it for illegal or gambling purposes. You also can’t borrow money to use as a down payment on a house purchase.