A personal loan can be an excellent choice for anyone who needs a small amount of cash to cover a set of expenses over a period of time. But with so many factors involved, some people find approval to be challenging.
The Appeal Of Personal Loans
A personal loan is an unsecured loan that individuals can take out to flexibly cover a variety of expenses. With no collateral needed to borrow the money, it’s a relatively low-risk option that offers several distinct benefits.
First off, personal loans almost always provide a lower interest rate than credit cards. For example, a typical credit card might charge around 15 percent APR on the balance, whereas an average personal loan may have an APR closer to 6 percent. When you’re talking about thousands of dollars, this can be a huge difference.
When compared to other types of loans, personal loans are valued for their versatility. Whereas other types of loans require individuals to spend the money on certain purchases and in specific allotments, a personal loan can be used for just about anything – including buying a car, remodeling your house, or even starting a business.
5 Tips For Getting Approved
As appealing as a personal loan is, you may have to take some proactive steps in order to make yourself an attractive applicant. Here are some tips for getting approved:
1. Beef Up Your Credit Score
Lenders will look at a variety of metrics when deciding whether to extend a personal loan offer to you, but few are more important than your credit score.
If your score is lower than you’d like, there are a few ways you can improve your score within a matter of months. Try fixing errors on your credit report; bringing balances up to date; and/or getting added as an authorized user on an existing card account.
2. Improve Your Debt-To-Income Ratio
A lender will take a glance at your debt-to-income ratio (DTI) to get a feel for your current financial situation. This ratio is calculated by taking all of your monthly debt payments and dividing them by your gross monthly income. This shows what percentage of your income is going towards debt payments. A lower ratio will increase your chances of getting approved for a loan.
3. Compare Lenders
“The internet has created new options for getting a loan. Instead of going to a bank and meeting with a loan officer, you can see potential rates and terms online. You don’t even need to apply with a bank and can choose a peer-to-peer lender instead,” CreditLoan explains.
Comparing lenders is a great idea. It allows you to get a better feel for the marketplace and what sort of rates and terms are out there. You can also use your knowledge as leverage to potentially negotiate more favorable terms.
4. Add A Cosigner
If you can’t qualify for a personal loan – or find that your low credit score inhibits you from getting a competitive interest rate – you may consider adding a cosigner to your loan application. The lender will consider the cosigner’s creditworthiness. In the instance you default, the cosigner can be held responsible.
5. Consider A Secured Personal Loan
If lenders are unwilling to offer you an unsecured personal loan, you may still be able to qualify for a secured personal loan. With the latter, you’ll be required to put up some sort of collateral – such as a house or car – that the lender can go after if you default.
Try A New Credit Card
If, after making the suggested changes and getting your finances in order, you find it hard to get approved for a personal loan, it’s time to consider other options. The first place to start is with a new credit card. Certain credit cards – such as Chase Freedom and Citi Diamond Preferred Card – will offer zero percent APR on purchases made during the first 15-21 months.
Plus, you may even get a signup bonus for taking out the card (which means they’re paying you). But if you do choose to go this route and treat the zero percent introductory offer as your own personal loan, make sure you have a plan to pay off the balance before the period ends. Otherwise, you could find yourself saddled with an expensive interest rate that quickly eats away at any earlier savings you enjoyed.
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