Loan companies are big businesses. However, they won’t say yes to every borrower that comes their way. The reason being not everyone is qualified and capable of paying off a personal loan. Such companies have one thing in common: they will make sure you can pay back the loan – and on time.
Why Apply For A Personal Loan?
People have different reasons for taking out a personal loan. More often than not, a massive number of borrowers use it to pay debts and fund other spendings. Typically, there is no restriction as to how you can use the funds. The following are the common ways borrowers use their personal loans.
- Aid in Starting a Business
- Consolidate Debt
- Car Purchase Financing
- Car Repair and Maintenance
- Cover Moving Costs
- Emergency Funding
- Fund A Vacation Trip
- Home Improvement Financing
- Major Purchase
- Pay Credit Card Debt
- Pay for a Funeral
- Pay for a Wedding
- Pay of Medical Bills
- Pay Off Taxes
How To Ace Your Personal Loan Application
If you need a personal loan, it is important to note that there are steps you need to take to avoid a loan rejection. These tips can help you increase the odds of getting personal loan approval.
Check Your Credit Score
Also known as your FICO score, it is a determining factor for lenders use to see how much of a good payer are you. The higher your three-digit credit score is, the better. Some online services offer free credit score checks, while others require you to pay a monthly fee to view it.
Once you know what your FICO score is, check with your preferred lender the minimum credit score, they allow borrowers to have for personal loans. If your score is below their minimum FICO score requirement, you can choose to improve your FICO score first before applying or find another lender with lower score requirements.
Check Your Credit Report
Your credit report can directly affect your FICO or Credit Score. Request for a copy of your credit report from major credit bureaus. You can do this for free once every year. Check any errors or discrepancies and if you see one, call the creditor and make a dispute.
Work On Paying Down Your Debt
When you have lots of debt, your Debt-To-Income Ratio goes up. Your DTI Ratio is your gross monthly income that goes straight to your monthly debt payments. The higher your DTI ratio, the more chances of personal loan approval. This is because it means you’re not capable of paying your monthly personal loan payments.
Start with your credit card balances. Doing so will not just lower your DTI ratio, it can also improve your credit score and reduce your Credit Utilization Ratio. Your credit utilization ratio reflects how much of the credit balance you use. The lower your credit utilization ratio, DTI ratio and the better your credit score it, the higher your chance for loan approval.
Good Read: Understanding Credit Utilization