Borrowing money is not as easy as they make it seem in advertisements. Applying for a loan does not always mean that you’ll be approved for the funds you need or want. There is often a lot of I’s to dot and T’s to cross as well as a few eligibility requirements that some may have a harder time than others qualifying for. Is applying for a loan ever a smooth process? While a few bumps in the road should be expected, this advice below can help make the process simpler.
Choosing the Wrong Type of Loan
There are several types of loans that can be applied for. The problem that some applicants have, is applying for the wrong type of loan for their financial needs. The first thing that should be considered before applying for a loan is what the loan will be used for. If you are looking for a short-term loan, then you might apply for a payday loan.
If, however, you were looking to buy a boat, motorcycle, or some other recreational vehicle, you might want to get more information on a company that offers financing for these types of vehicles. This can increase your chances of being approved.
Not Having the Credit
Having a good credit standing is vital to being approved for a loan. Many consumers are unaware of their credit status prior to applying and are ultimately denied because of findings on the report. Prior to applying for a loan, it is ideal to see what your credit score and history look like. If there are things on your report that need to be removed or worked out you should do so prior to applying. A credit rating of 650 or higher typically gets you approved for a loan.
Incomplete or Inaccurate Information
In an effort to be approved for a loan there are circumstances in which applicants will leave information out or add information that isn’t accurate. If lenders aren’t able to verify information, they will automatically deny your application. It is best to be upfront about your current financial status and credit standing. This information can all be verified fairly easy and therefore, being upfront is your best option. There are creditors that give leniency to applicants who have a less than satisfactory financial status, so telling the truth can, in many cases, still get your application approved.
More Debt Than Income
A lender wants to know that you have the financial means to repay the amount you borrowed with interest. They do this by assessing your total income to the amount of outstanding debt you have. If you have more debt than income, lenders will deny you as they see no way for you to repay them in a timely fashion. It is ideal that your debt to income ratio be less than 50% to get approved. You can change this by paying down some of your debt before applying for a loan, or finding a way to increase your monthly income.
Income is how consumers are expected to repay their loans. An applicant that has had several jobs over the past few years may get denied for a loan. Since there is a possibility that you could become unemployed in the near future, this could leave the lender on the hook with a lot of unpaid debt. If you’ve had more than one job in the past year or two, you may need to stick it out a few more years before applying for a loan.
Whether you’re trying to apply for a quick loan, home loan, boat loan, or business loan, there are a lot of hoops you must jump through to get approved. The solution is to see things from the lender’s point of view. In order to ensure the funds will be repaid, they essentially approve loans of those who have reasonably good credit, a decent source of income, and a small debt to income ratio. By making these adjustments to your financial circumstances you will most certainly see a lot more approvals than denials.