Do these five things before you apply. (iStock)
The total number of personal loans borrowed by Americans peaked at $ 162 billion in the first quarter of 2020, according to TransUnion. However, the growth rate towards the end of the quarter was also the slowest in more than two years, the credit reporting agency said.
Getting personal loan approval could be more difficult due to the coronavirus pandemic – as lenders become more cautious and increase credit score requirements on unsecured loans. Credible can help you determine if you would be a good candidate for a personal loan. Just enter some information into Credible’s free online tools and find out what type of rates you qualify for today.
But before you officially begin the personal loan application process, you might want to follow these five steps to increase your chances of getting approved.
1. Go through your credit report
Lenders look at the credit scores of borrowers to help them assess their levels of risk. It’s difficult to get approved for a loan with bad credit, so you’ll want to check your credit score and see where you are at before you apply. If you have bad credit, don’t worry, there are several ways you can increase your credit score so you can eventually get approved.
If you already have a high credit score or are confident in your credit history, you can enter your desired personal loan amount into Credible’s free tools and start the application process.
HOW TO GET A FREE CREDIT REPORT
Unfortunately, errors in your credit report could lower your credit score. A study of the Federal Trade Commission found that one in five consumers had an error in their report that could lead to adverse loan terms.
You are entitled to a free credit report from the three credit bureaus each year. After you get it, check for errors like missed payments or accounts you didn’t open. If you find an error or negative items on your credit report, dispute it with the credit bureau and contact the company that generated the report to correct the error.
2. Look at your ratios
In addition to your credit history, lenders will look at your debt-to-income ratio, which is the amount of your debt compared to your income. If you have a lower percentage, you probably have a manageable level of debt, which is an important factor when applying for a personal loan.
To see where you stand now, turn to Credible. Credible can help you compare multiple lenders at once and help you find the best deals based on your financial situation.
HOW TO CALCULATE YOUR DEBT TO INCOME RATIO
Before you apply, do the math by adding up your loan payments, such as student or vehicle grades. Monthly expenses like rent or utilities are not included, and a ratio of less than 40% is preferable.
For example, if you have an income of $ 2,000 per month and a student loan repayment of $ 400 and a car loan of $ 325, your debt-to-income ratio is 36.25%. But if you also have credit card debt with a minimum monthly payment of $ 150, your ratio is 43.75%, which might make approval difficult. Before you apply, pay off your debts to lower your ratio.
Another number that lenders take into account is your debt utilization rate, which is the amount of revolving credit you’ve used up against the amount available. A number less than 30% is preferred. To improve this ratio, you could ask for an increase in your credit limit. However, make sure the creditor doesn’t demand a thorough investigation of your credit, which could backfire and lower your credit score.
3. Determine how much you need to borrow
It can be tempting to ask for more than you need, just in case. But asking for too much money can be a red flag for lenders. Before entering a loan amount, consider your other financial obligations and the impact of the new loan on your monthly budget.
It can be helpful to use a personal loan calculator like the one from Credible to determine your monthly payment and its impact on your cash flow. Once you’ve determined your monthly payments and the impact on your savings account, use Credible to compare rates.
9 OF THE BEST PERSONAL LOANS IN 2020
A larger loan could put a strain on your finances, which could cause a lender to decline your request. A personal loan calculator can also help you estimate how much you would qualify for.
4. Obtain a co-signer
If you have a fair credit score or are just starting out and haven’t established a credit history yet, you can increase your chances of getting approved if you have a co-signer who has good or excellent credit. Lenders will be more likely to give you money because, if you can’t pay for some reason, the co-signer has agreed to take responsibility for it.
A co-signer can be a family member or a friend, but you’ll want to tread lightly in this type of arrangement. If you think there is a risk that you will lose your job or be unable to make the monthly payments, you could permanently damage your relationship with the co-signer by defaulting. And if they become unable to pay, their credit could suffer as well.
HOW TO FIND A COSIGNER FOR A LOAN
5. Shop around and compare lenders
Finally, look for a lender where you have the best chance of approval. Many will disclose their requirements on their website, including a minimum credit score or annual income. When you find a lender who matches your qualifications and offers the best rates, you can go ahead with your application instead of wasting your time.
Visit Credible to explore your options. You can compare rates and lenders on one page.
DOCUMENTS REQUIRED TO APPLY FOR A PERSONAL LOAN
Ultimately, the best personal loan is the one that doesn’t harm your financial well-being. Make sure you can handle the monthly payment without breaking your budget. By doing the preparatory work before completing the personal loan application, you can get the best rate from the lenders.
