Loans are essential parts of our financial life. However, they can also damage it if you’re not careful- especially a personal loan.
Personal loans can be relatively difficult to obtain if you haven’t been intentional about your finances leading up to your application. If you’re looking to borrow, here are some tips for how to get approved for a personal loan.
Their Point Of View
Think about what could be going through someone’s mind who is handing you over a large sum of money. They want proof that they’re not going to lose out on all that cash. Sometimes, this makes applications difficult.
However, be aware of loan companies that are too quick to give you money. Non-credible institutions will try to get you on a contract that will lead to a debt you can’t pay off.
Good loan companies will take the necessary precautions to ensure they won’t be putting you into too much debt because they want to get paid back.
Now let’s look at things you can do to plan for the easiest loan approval possible.
Earn Good Credit
Good credit will help you with any type of loan. Your score tells finance companies what your financial behavior is generally like. They make lots of decisions off of this number, so make sure you keep it up.
You can look up better ways to have a good credit score, but here are some basic tips:
- Make payments on time
- Don’t spend more than 30% of your allotted credit card amount
- Pay off credit balances at the moment of purchase
Collateral
Credit companies love to see if you have something of value they can ask for if everything goes wrong. This could be your car or items that cost around the amount as your personal loan.
Collateral is scary because it implies the possibility you won’t be able to make your payments back. It’s a good reminder to be smart about your money, so you don’t have to lose something valuable to you.
DTI
DTI stands for Debt-to-Income ratio. This is an important thing to remember when thinking about a personal loan. Loan companies will usually bring this up because they don’t want to grant you a debt amount that you can’t pay back.
A general percentage you can think they will live by is 40%. You can usually get approved for a personal loan if your payments are under 40% of your income.
Don’t Ask For Too Much
Follow the DTI rule, but be sure to include the interest. Borrow less if the monthly payments exceed 40% of your income. Also, keep any other debt you have in mind and add those payments to your possible new payments.
Think Ahead
All of this takes time to build up well, so make a financial plan long before you ask for a personal loan. Keeping your finances in check will set you up for virtually anything you want to do down the road.
Have A Plan
In conclusion, prepare a plan before meeting with the loan company. They want to see that they’re giving you money for something worthwhile and that you’ll have the means to pay them back.
The more prepared you are, the more likely you are to borrow the amount you want.
