Do you need help financing a major expense? Whatever reason you need extra money for, you may get a personal loan approved if perhaps you’re planning a wedding, you want to re-do the kitchen or you are simply facing an unexpected expense. This type of loan may be a good fit for you in these cases, as consumers can take out one for whatever reason they choose. So if this sounds like you, keep reading to make sure you get your personal loan approved.
Factors to Consider to Get your Personal Loan Approved
Personal loans boast wide appeal. They typically have terms of one to seven years, with a flexible interest rate based on the borrower’s income and credit history. Once approved, you will receive a lump sum of cash that you must repay each month until the term of your loan is up. Of course, you need to make your case to the lender in order to avoid having your loan rejected. Note that a little research and preparation can go a long way. To maximize your chances of being approved for a personal loan, here are three factors to consider:
1. Select the right lender
Banks, credit unions, and online lenders offer personal loans. Their terms and interest rates vary, however, so it’s important to shop around and identify the lender who can best accommodate your needs. Also, note that if your credit score is below 700, you will likely be turned down by most major banks. At the very least, you will have to pay a much higher interest rate.
Before completing a personal loan application, research opportunities online and evaluate a variety of potential lenders. Calculate the terms you can afford, and plan strategically to pay off the loan as quickly as possible. Then select the lender whose loan package reflects what you are looking for.
If conventional lenders reject you, search for an alternative that caters to low-credit borrowers. While you should certainly be realistic about what you are eligible for, make sure to steer clear of short-term payday lenders, whose fees tend to be exorbitant.
2. Determine whether you want to apply for a secured personal loan
There are two types of personal loans. An unsecured personal loan is an installment loan where you do not put up collateral that the lender can repossess if you default. Other than your creditworthiness and overall reputation, the lender has no guarantee that you will pay the loan back. This is the most common type of personal loan.
Meanwhile, secured personal loans are backed by an asset — your house or car, in most cases — that the lender can seize in the event that you default. While lenders do not approve just anyone for a secured personal loan — again, these loans are much less common than their unsecured counterparts — secured loans usually come with lower interest rates. What’s more, consumers who might be rejected for an unsecured loan may be approved for a secured personal loan, or they may simply be approved to borrow more money.
Ultimately, you must consider both secured and unsecured personal loans to maximize your chances of getting approved.
3. Apply for as little money as possible
To be approved for a personal loan, you also need to keep your debt-to-income ratio in check. This ratio consists of your monthly debt payments divided by your gross monthly income; it’s the percentage resulting from this calculation. The Consumer Financial Protection Bureau recommends keeping your ratio at 43% or lower to put yourself in a strong financial position.
As such, it’s important to apply for as little money as possible in your pursuit of a personal loan. Lenders may overlook a less-than-ideal credit score to accommodate borrowers with a lower debt-to-income ratio.