This is a sponsored post. All opinions are my own.
Whether you need money to take a vacation, fund your wedding or meet your basic living expenses, you have probably thought about taking out a personal loan. This is a type of loan where collateral does not need to be put up, like your car or house, which can be repossessed by the lender if you default. Since the lender doesn’t have any guarantee for your loan except for your reputation, the interest rate will be higher on a personal loan compared to a collateralized loan.
When personal loans are used correctly, they can save you a significant amount of money compared to pawnshops, overdrafts or payday loans. However, there are pitfalls associated with them as well. There are unfortunately many dishonest lenders who might try to bleed you dry with high-interest rates and fees.
The following six tips can help to improve your odds of qualifying for better terms and getting approved for a personal loan.
Determine The Kind Of Personal Loan That You Need
Usually, when people are discussing personal loans, they are referring to a closed-end, unsecured install loan. However, technically speaking, credit cards, payday loans, mortgages and auto loans are also personal loans rather than business loans. Be sure you understand what kind of loan you are applying for.
If your credit isn’t high enough to qualify for a loan or receive the best interest rates, the lender might instead offer you a secured loan option. If you are willing to offer your home or vehicle as collateral, you might qualify for a better interest rate with a home equity loan, mortgage or title loan. However, those are secured personal loans, meaning you could potentially lose your property if you can’t make your payments for some reason in the future.
Check Your Credit Score
Don’t apply for loans that you know you are unqualified for, hoping that you will get lucky. Each time you apply for credit, it is reported on your credit report, resulting in a small hit on your credit score. Your credit score suffers even greater damage if you have an application rejected since you might need to report this rejected application when trying to obtain credit in the future. This can cause red flags for a loan officer when reviewing your credit application.
Ask for your free credit report at least once per year to ensure that it does not contain any inaccurate or false statements. Make sure to get your free credit scores from only reputable online credit reporting companies. Once you have this information, speak with your lender about what guidelines they use when they are reviewing loan applications before applying.
Improve Your Credit Score
Before applying for a personal loan, do whatever you can to improve your credit score first. This is especially important if you have to have a credit score that is close to being in the next classification bracket.
- Fair Credit 640+
- Good Credit 700+
- Excellent Credit 760+
If you have a 770 credit score, you already have excellent credit, and it won’t help that much to increase it to 780. However, if you only have a 680 credit score, then getting it up over 700 could significantly increase your odds of getting approved for a loan and help you qualify for a lower interest rate which will save you lots of money.
Some of the best things you can do to improve your credit score are to reduce your debt-to-available credit ratio and always pay your bills on time. If you have a negative item or late payment on your credit history, you should wait for some months before applying for a loan and make sure not to be late on any of your other payments. You can also try writing the lender who reported the negative item and request that this negative item be removed.
Find The Best Lender For Your Specific Credit Score
Most major banks will turn you down if your credit score is under 700 suggests Kent Rammen who offers loans through https://finanssans.no/beste-forbrukslan. Lenders that do not reject you will definitely demand a higher interest rate from you. With conventional lenders, if your credit score is under 640, you have a slim to none chance of getting a personal loan approved.
Even if your options are limited based on your credit score to the kinds of lenders specializing in high-risk borrowers, it is still important to be selective in who you borrow money from. Never borrow from a short term payday lender. These loans have incredibly high fees attached to them and are designed so that you get into a cycle of loans that continuously renew, which can push your APR to 400% and higher.
Search for an online lender specializing in low-credit borrowers. There are numerous lenders that aren’t legally required to report your payment to the major credit agencies. However, if you can find one that does, that can be a great way to raise your credit score.
Consider Only Reputable Online Lenders
It is a smart idea to comparison shop for personal loans online. It will save you a lot of money and time compared to having to drive around to various brick-and-mortar lenders. Online lenders also have lower operating expenses, so you might also be able to get a lower rate from them.
There are also many shady online lenders who claim to guarantee loan approvals that are often just advance fee loan scams. Check to ensure that the online lender that you are considering is a state-licensed financial institution with no pending or past lawsuits. Also, check out their profile at the Better Business Bureau and see what their rating is.
Pay Close Attention To Your Debt-To-Income Ratio
When applying for a loan, ask for as little money as you can. Also, make sure that you don’t over- or under-report your income. It is possible that loan officers might overlook a few credit indiscretions or borderline credit score if you have a high income compared to how much you want to borrow. Be sure to furnish your pre-tax earnings, unless otherwise specified, and be sure that all your sources of income are included. Also, include your spouse’s income when allowed by your lender’s guidelines.
It is also very important that you don’t get into the habit of either lying or inflating your income on loan applications. When a lender doesn’t require you to provide documentation to prove your income, you may be tempted to get somewhat creative. However, you need to insure you can provide evidence and justify any claims you make regarding your income. Lying about your income could result in you facing criminal charges, especially if you end up not being able to make payments on a loan that you received while being dishonest.