5 essential tips to get a personal loan approved 11.07.2021
While it’s true that legitimate lenders never guarantee credit, there are many steps you can take to improve your chances of approval.
The tips below will help you qualify, whether you need a loan for debt consolidation, a holiday, wedding, car, essential bills, or for any worthwhile reason.
Check and improve your credit score
Your credit score represents the information in your credit report, which is a record of your financial behaviour. A higher credit score tells lenders you’re more likely to pay your debts on time. This increases your approval chances. That being so, here are a couple of things that will help boost your credit score.
- Fix errors. Common errors to watch out for include incorrect information, such as wrong accounts or outstanding balances on accounts you’ve already settled. If you notice any incorrect listings, contact the relevant companies to resolve the issue.
- Be a responsible borrower. Be sure to respect payment deadlines, don’t max out your credit limits, and avoid multiple loan applications in a short frame. If your score is in bad shape, it’s sometimes best to wait until you have a better chance of getting approved at a lower interest rate.
Canadians are entitled to one free copy of their credit report per year. You can get yours from Equifax to get started with improving your score.
Decide what’s affordable for your budget
Responsible lenders favour responsible borrowers and will do their due diligence to ensure you’re asking for an amount you can afford. It’s also up to you to figure out how much debt is comfortable for your budget.
A personal loan calculator can be a bigger help in this regard because it also gives you a monthly repayment estimate for any term or amount you choose. Also, find out how much the origination fee is, so you can figure out the amount you’ll receive after deductions.
Boost income and pay down debt
Your debt-to-income ratio is the percentage of your monthly income that’s already consumed by debts. Most lenders require you to have a certain DTI before approving your application. If it’s high, lenders will consider you high-risk since taking on more debt will squeeze your budget.
However, a lower ratio shows that your debt is manageable, and your budget can handle more. As such, paying off some of your debt before applying will create more room in your budget, making the new loan more affordable. In the same vein, earning extra money from part-time work or a side hustle and getting a raise at your full-time job can increase your chances of approval.
Add security or a co-signer to strengthen your application
Secured and co-signed loans work great when it comes to lowering the risk you pose to the lender. This is especially so if your credit score is in the lower range. For starters, secured loans require you to offer an asset, like your home or car, as collateral for the loan. That means if you fail to repay, the lender will seize the asset instead to recover their investment.
On the other hand, a co-signed loan is when you add a second borrower to your application. This co-applicant will also be responsible for making repayments. This makes the loan more affordable and unlocks additional benefits, such as a lower interest rate and the ability to borrow more.
Shop around to find the right lender
Applying for the right loan with the right lender is essential if you want to get approved. That means you shouldn’t settle for the first offer you receive without shopping around. Not all lenders are alike, and during your search, you’ll find many variations in terms of minimum requirements, rates, fees, and terms and conditions. The best loan for you should be one that suits your budget and which also improves your overall borrowing experience.
For instance, some lenders will let you pre-qualify, meaning you get to know your estimated rate and other details of your loan before committing. The good news is this won’t impact your credit score and allows you to make a more informed decision.
Applying for a personal loan doesn’t have to be hit and miss. Now that you know how to boost your chances of approval, you can apply for the financing you need with more confidence.
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