Most experts will advise you against taking out a personal loan given the higher interest rates associated with them; however, in some specific circumstances, the need to acquire a personal loan is inevitable. Personal loans tend to be more easily accessible compared to other types of loans. This easy route that most people opt for may explain why they are a bit pricy when we put interest rates into consideration. Recently, the size of personal loans, or rather the total amount of personal loan that an individual is entitled to, and the flexibility in payment terms make personal loans seem so much more enticing than was the case a couple of years back. For more information in regards to the definition and terms about personal loans click here.
A personal loan may sound quite enticing. However, getting a personal loan approved by your finance provider is not that easy. It is likely that your loan may not get approved if you use the wrong approach in your personal loan application. In order for your loan application to be successful, there are a couple of things that you need to get right from the beginning of the process to the end. It goes without saying that knowing what it takes in order for your application to be approved by the lender is the best defense against the rejection of your application.
Let us look at some 8 superb ways of getting it right when it comes to your personal loan application and minimizing any risks of the application being rejected:
- Consider the minimum income requirement as per the lender’s
- Check if you meet the employment requirement.
- Do you have sufficient collateral?
- Ensure that your loan purpose is allowed or acceptable.
- Put into consideration the lender’s credit requirement.
- Put a limit to your outstanding debt.
- Get all the professional help you can
- Choose the right bank
Having mentioned the above tips, let us have a close look at each point explicitly in a bid to give an elaborate description as to what each of them entails.
Consider the minimum income requirement as per the lender’s terms
Many lenders will tend to have a minimum income requirement that is tied to their list of requirements in order for you to become eligible or rather qualify for a personal loan. In most cases, this may not be listed on their website which means that you would have to do some deep digging. You can, however, do so by calling the lender directly and asking them what their minimum income requirement is. Simply put, if you do not have an income to pay back your loan, then you can by default not afford to borrow leave alone be eligible.
Check if you meet the employment requirement
Most lenders will generally consider an income that is of various sources, but this is not always the case. Sometimes freelancing work or income as a result of child support payment will not make the cut. In most cases, a lender will require to have been employed by a given company for a given number of years. If that is not the case, they will require that you get your income through certain regular direct bank deposits.
Do you have sufficient collateral?
In order for you to take out some personal loans especially if they are from banks, you will be required to provide some sort of collateral in order for you to borrow. Collateral can be in form of a source of any liquid money that the lender can use in a scenario where you default your loan payment. It can also be in the form of a valuable piece of property such as a piece of land or even the log book to your vehicle. When you default loan repayment, you risk losing your collateral which in some instances has more value than the loan issued. Having sufficient collateral lowers the risk that a lender may face and can help you qualify for better personal loan terms. See here for more information.
Ensure that your loan purpose is allowed or acceptable
In most cases, personal loans are open and can be used for a couple of things. However, it is not every lender that will allow your loan to be used for just about anything. For instance, you may not be in a position to use your personal loan funds for your business expenses. It is always wise to check with your lender in order to ensure that you can use your funds to take care of whatever immediate needs you might have.
Put into consideration the lender’s credit requirement
A major factor that most lenders consider for personal loan applications especially if it is unsecured is the borrowers’ credit history. Most lenders have a credit requirement that they will require you to meet even if you have a strong credit history. It is wise that you check with your lender what your credit score is and what their requirements are before you apply for a personal loan
Put a limit to your outstanding debt
It is important that you check your DTI (debt-to-income) ratio and ensure that it is acceptable by the lender. Simply put your DTI is a measure of how much you’re able to borrow. This does not only show you’re responsible with your money but also shows you are in a position to repay your loan each month. A high DTI is an indicator that so much of your money is used to pay off other existing loans. In order for you to qualify for a personal loan, a lower DTI is always recommended.
Get all the professional help you can
Getting in touch with a CS or even a lawyer can help you navigate the personal loan application process. Both the chartered accountant and CS will see to it that your financial documents are in order. Having a lawyer on board will equally assist you in figuring out whether the clauses in the loan agreement are beneficial to you or just but a reap-off.
Choose the right bank
In choosing the right bank, it’s important that you consider its location. Choosing a bank that is closer to your physical residence tends to work out better. Most banks take comfort in knowing that you are physically available thus you stand a higher chance of your personal loan being successful.