Assuming that you’ve already ascertained that a personal loan suits your current circumstances, you still won’t know if you’ll get one until you apply for it. You probably wouldn’t be considering a loan unless you really need it, so taking some measures to improve your eligibility is essential to getting your much-needed cash.
Here are some tips to get you what you need.
Personal Loan Information
You can apply for a personal loan through a bank or other types of lenders. A personal loan is paid back in installments, usually anywhere between 12 to 84 months.
There are two types of loans, secured and unsecured loans. A secured loan is backed up by collateral. An unsecured loan doesn’t need collateral and it’s left up to the lender whether they loan you the money or not. Both types of loans carry interest, but unsecured loans tend to have a higher interest.
Minimum Requirements
Depending on where you live, certain requirements must be met. For instance, in the UK, you must be 18 years or older, be a permanent UK resident, have a UK bank account, and have a monthly source of income. These are non-credit factors, meaning they don’t affect the terms of your loan, but are, instead, the minimal requirements. When you meet all requirements, look for an easy and online method to apply. This will shorten the time of application for the entire process and you’ll be informed in just a few minutes if you’ve been accepted. If accepted, the approved loan will reach your bank account quickly.
Lenders look at several factors before approving a loan. That’s why it’s important to improve your financial health and meet certain requirements to be eligible for a loan in the first place. Here are 7 ways to do that.
1- Prequalification
To get an idea about the kind of loans you are eligible for, and their rates, you could first apply for a pre-approval application. This won’t affect your credit history.
2- Purpose of Loan
Personal loans can be used for different things. A loan officer will probably ask you what you need the loan for. It’s not illegal to say you need the loan for something and use it for something else, but you run the risk of getting into trouble, especially if you default on the loan. So, it’s best to be open from the beginning. Check and confirm what the loan can be used for before applying.
3- Improve Your Credit Score
This is usually the first factor creditors will look into. Credit scores are rated between 300 and 850. Chances are, you’ll have trouble finding a lender if your score is 550 or lower. Start improving your score by paying your minimum debt repayments on time and, if possible, pay more than the minimum payment due. By doing both these things your credit score can improve by up to 65%.
4- Debt-to-Income Ratio
Earning more cash can also help because creditors look into your monthly earnings. This has to do with your debt-to-income ratio (DTI). Your DTI shows lenders your likelihood of being able to pay the loan back. You can calculate your DTI by dividing your debt figure by your income. A DTI of 20% or less is excellent. Each lender sets their own DTI, so it’s a good idea to pay off some of your debts to become more eligible.
5- Borrow Only What You Need
You don’t want to borrow only to find yourself falling into more debt. The more money you borrow, the more difficult it will be for you to pay back the loan and the interest on it. When you ask for too much cash, it can be viewed as a red flag for creditors, especially if you have a poor credit history.
6- Have Sufficient Collateral
Some personal loans do require collateral. If you’re confident you will be able to pay back the loan according to the terms of the lender, you might prefer to put up collateral because it will allow you to take advantage of better rates and terms, such as paying less interest. Having collateral can make you more eligible, even if you don’t use it.
7- Consider a Cosigner
You might not have a long credit history, and that is another thing that lenders consider. It takes some time to increase credit history, so you can consider a cosigner for your loan who has sufficient credit history. A cosigner agrees to step in and pay the debt if you can’t.
Personal loans could be used for a variety of reasons and often prove to be a good choice when you’re strapped for cash. Anyone can find themselves in a situation that calls for an immediate amount of money that they do not have. Even though you can’t completely guarantee a lender’s approval for a loan, you can take steps to improve your eligibility.
