Are you trying to qualify for a loan? Or have you been rejected quite a few times and want to know some tips to finally get approved? Whatever the case, we know that loan applications can be time-consuming.
Even if you’ve had loan applications turned down in the past, that doesn’t mean you can’t get approval in the future. Having a limited credit history, applying for loans too frequently, or even making a simple mistake on the application can all lead to rejection. The situation can be salvaged if you address potential loan issues sooner.
In this article, we’ll give you tips for loan approval so you can get approved in no time.
Tip For Getting a Loan Approved
Sometimes, minor inconveniences like misspellings and incorrect information can get your loan application rejected. Some are as big as having incurred huge debts from previous transactions. To avoid these, here are ten loan application tips:
Take a Look at Your Finances First
Before deciding on taking a loan, double-check your finances first. Think about whether or not you can afford the purchase without resorting to a loan. Also, make sure you need the product or service you want to purchase. It’s better financially to save up for what you want instead of taking out a loan. If you can’t pay for something immediately, creating a budget can help you estimate how long it will take to save the necessary funds.
If you’ve decided to take out a loan, the next thing you need to do is figure out how much you can repay every month. Budgeting will also help you determine this once you get a loan approved.
Research the Type of Loan You Need
Another thing you need to consider is the type of loan you need. Do you need it for student loans, mortgages, cars, or other loans? Loan amounts, interest rate types, and repayment schedules vary widely depending on the type of loan chosen. If you don’t know which loan type you should take, it’s best to do research or ask your preferred lender for recommendations. By doing so, you can determine with greater certainty whether or not you require a loan.
Keep Your Numbers Realistic
One personal finance tip you should take to heart is to be realistic with your numbers. Don’t try to get a loan if you know you can’t repay it. It will hurt your finances in the long run. So, ensure you’re borrowing an amount you can afford to repay.
Consider your debt-to-income ratio when deciding how much of your money should go toward paying off debt. The debt-to-income ratio evaluates a person’s ability to repay monthly debts concerning their monthly gross income.
Here’s how to calculate:
(Monthly Total Debt Payment ÷ Monthly Gross Income) x 100
For example, say your monthly salary is P30,000, and your total monthly debt payment is P8,000; your debt-to-income ratio is 26.67%. In other words, your monthly debt payments consume 26.67 percent of your income.
A high debt-to-income ratio increases the risk that a lender will reject your loan application. So, for this loan approval tip, ensure you have a lower debt-to-income ratio to approve your application.
Ensure Proof of Income
Having proof of income is a major plus when learning how to qualify for a loan. The likelihood of getting a loan is higher if one has a steady job than if one is self-employed. Since you have a reliable source of income, the bank can rest assured that you will be able to repay the loan.
However, self-employed individuals don’t need to worry. Loans are still available to freelancers who can verify their income. Your lender may request the following documents if you are self-employed:
- income tax return copy
- audited financial statements from previous years
- licenses or permits required, such as a DTI registration certificate or SEC registration
These records attest to your proven ability to work and pay taxes. Whether you are an employee or a freelancer, you can benefit from these guidelines for taking out a loan.
Check Your Credit Score
Credit scores are also important in determining the success of your loan approval. Financial institutions will use this information to determine how much money they’re willing to lend you and whether they will lend you anything. Generally, the higher your credit score, the more likely your loan application will be approved and the better the terms you will be offered. So, check your credit score before applying for any type of loan.
Establish a Solid Credit History
Lenders will only accept a loan application if they discover you have a good credit history. This is because it raises the notion that you can handle credit agreements better. If you have a poor credit history, start building a better one. Here’s what you can do for this loan application tip:
- Get your bills paid on time
- Finish paying off your debts
- Avoid spending more than your credit limit allows
- Prevent unfavorable events outside your control, such as bankruptcy or foreclosure
Evaluate Existing Credit
Your ability to get new credit may be affected if you already have several credit cards or loans. Potential lenders may be wary of extending you any additional loans if you already have many open credit accounts.
Nonetheless, open credit accounts do not necessarily disqualify you from securing a new loan. Lenders will determine whether they will extend credit based on some criteria, including:
- your good credit history
- your current credit utilization rate
- your current total debt
Additionally, lenders might get wary if they see you’ve already used up a large chunk of your available credit. One piece of advice for getting a loan approved is to keep your credit utilization rate below 30%.
Check Different Lenders
When applying for loans, it’s crucial to compare lenders. Don’t just apply hastily for one, especially if their terms and requirements aren’t suitable for your situation. Comparing different lenders will give you an advantage in determining which will be more likely to approve your application. To do so, look into different lenders in your area, review their requirements for eligibility, and see if any of them apply to your case. This will help you determine which loan provider is best for your needs.
Verify Your Application
After narrowing down your options for potential lenders, gather all the necessary paperwork before applying. Any inconsistency or error on your loan application can result in rejection. To qualify for a loan, provide complete and accurate information, including your current address, date of birth, and citizenship.
Spread Out Your Credit Application
Don’t lose hope if the lender or bank rejects your application; you can always try again. However, don’t apply one after the other. With cutting-edge fraud detection software for banks, lenders can easily spot fraudulent activity. Several loan applications after rejection might alert banks and perceive it as fraudulent activity, prolonging loan rejections. Lenders will view your credit-seeking behavior as a red flag, suggesting you may not be trustworthy with money.
Achieve Loan Approval With These Tips
Establishing a good credit history and demonstrating to lenders that you deserve the loan approval takes time. It’s a process that requires discipline. And once you know how to meet the lending criteria, you’ll soon reap its benefits.
Therefore, don’t let loan rejections depress you. Follow our loan approval tips so that your next one will succeed.