When applying for any sort of loan, lenders take a whole host of factors into consideration. They weigh your income, your credit score, and other factors to determine whether you are a risky borrower.
The lower the risk you represent, the more likely you are to be approved – and at larger amounts and lower interest rates. Knowing a few of the things that you can do to increase your loan approval odds can help you access much-needed credit.
Ways to Boost Your Loan Approval Odds
Most of the following tips will take some time to work. Improving your loan approval odds is a process. With that said, some things – like getting a co-signer – can make a huge difference overnight.
Always be sure to balance your time frame against your loan needs. If you need money immediately, you won’t have time for some of the longer-term options below.
Get a Co-signer
As already mentioned, one of the best ways to boost your loan approval odds is to get a co-signer. Co-signers agree to cover the loan if you end up defaulting on it.
Co-signers should have a higher credit score than you or assets that boost their net worth. This will make lenders much more likely to look favorably on your application. It’s also required for students, who don’t have incomes or job histories to rely on.
Ask for a Smaller Loan
Another simple thing that you can do to increase your chances of getting a loan that takes no time at all is reducing how much you ask for. A smaller loan is less of a risk for a lender and is easier for you to pay back.
Reduce Your Debt (and Boost Your Credit Score)
The odds of being approved for a personal loan are directly tied to your credit score. The best way to do this in the medium to long term is to pay down your existing debts.
If a lender sees a large credit card balance and other outstanding debts, they are less likely to offer you more money, since you already have debts you’ll have to pay back. Reducing how much you owe will reduce your liabilities, and will also improve your income to debt ratio. Both of these things are massive components of your credit score.
Hit the minimum payments on all your debts, but pay as much as you can on the highest interest debt: in most cases, this will be your credit cards. This is called the snowball method. After you’ve paid off your credit cards, switch to other debts, like loans and car payments, to further reduce how much you owe in total.
After a few months of doing this, your credit score will increase, and it’ll be easier for you to be approved for a loan.
Several Applications Will Hurt, Not Help, Your Odds
Don’t apply to many loans all at once. Several credit checks in a short period can raise a red flag for lenders, and reduce your approval odds.
For more information about getting a loan, especially if you have a bad credit score, check out the Loan category on our blog. It’s full of information that can help match you with a loan suited for your financial needs.