In recent years, Americans have borrowed an outstanding $125 billion in personal loans according to TransUnion. These loans are a great way to give yourself a little financial wiggle room and can help people from all walks of life.
A personal loan can help you to consolidate your debt, remodel your home, or treat yourself to your dream vacation! And 70% of graduating students take out loans to help them complete their studies.
While taking out a personal loan is a great way to give you some extra financial support, it isn’t always easy. You have to go through a rigorous application process in order to be approved for a loan, and getting rejected is a common occurrence.
So how do you avoid a rejected personal loan? Well, you need to keep an eye out for common pitfalls and avoid them!
Read on to find out all about these and how to get your personal loan approved.
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Basic Requirements to Meet to Avoid a Rejected Personal Loan
Before you apply for a personal loan no credit check, make sure that you meet the necessary requirements. Some requirements vary depending on the type of loan, but if you don’t meet these basic requirements then you’re wasting your time.
You must be at least 21 years old in order to apply for a loan. And most banks or loan agencies also won’t lend money to anyone over the age of 60.
You also need to demonstrate that you are working. Getting a bad credit loan without a job is nearly impossible as the chances of you paying it back are very low.
You must have been working for at least two years prior to making your loan application. Ideally, you will have been working for your current employer for over a year although not all lenders will ask for this. This work could be part- or full-time, but the most important thing is that it’s consistent.
Provided you meet these basic requirements, you’re ready to make your application! So let’s take a look at how to not get rejected for a personal loan.
1. Get Your Employment Records in Place
As we’ve already mentioned, you need to demonstrate a consistent working record in order to avoid personal loan rejection. So make sure that you have your employment history in order.
Listing your basic employment history won’t be enough information for the guaranteed loan application process. You will need to provide dates and contact details for your employers on your application. This allows lenders to check that you haven’t lied on your application.
The application will also ask you about your current and previous salaries. So keep a note of this information to speed up the application.
If you’re self-employed or work in a freelance capacity, proving your employment history can be a little tricky. Keep a copy of your invoices in case you need them as proof of income.
You can also submit a copy of your self-employment tax return as proof of your income. So hold onto these for the years leading up to your application. The longer that you can demonstrate you’ve had consistent income, the better!
Most applications will invite you to submit additional documents with the application forms. Do this when you submit to save the lenders having to contact you for them or rejecting you outright. And make sure that you label all additional documents clearly for processing.
2. Find a Loan That Matches Your Credit Score
Your credit score is a type of financial record that you build up over your financial life. It’s based on your previous financial transactions, such as how quickly you’ve paid off debt or bills.
Someone who consistently pays the bills on time will have a good credit score. While someone who often receives late notices or overdraft charges will have a bad credit score. And getting a personal loan with bad credit can be a real challenge.
The first step is to understand your credit score and how you can improve if if you need to, according to the FTC. If you have poor credit then you have two options.
Firstly, you can improve your credit score by getting your finances in check. Avoid dipping into your overdraft and ensure that you pay your bills on time.
If you rent or live with friends, you can boost your credit score by transferring the bills to your account so you pay them off. You don’t have to pay more as your roommates still send you the money to cover the bills. But paying the bills on time will vastly improve your credit score.
But if you need your personal loan soon then you should check out bad credit personal loans. These often come in the form of installment loans and they take your financial history into account rather than rejecting you based on it.
For more info on how to get a personal loan with bad credit, check out our tips on finding the best installment loan for you.
3. Be Thorough with Your Application
Always check through your application before you submit it.
This should be obvious but a lot of people’s applications get rejected because of simple errors. It’s not the lender’s job to chase up errors or questions they have about your installment loan application. And they won’t approve your loan if they aren’t confident that you’ll pay it back.
So make sure you read through all the information provided. Get in touch before submitting your application if you have any questions. After all, wouldn’t you rather ask a stupid question than have your loan rejected over an avoidable mistake?
4. Do the Math
A lender won’t loan you more money than you’ll be able to pay back. That’s just logical. So think about this before you make your loan application.
Look at how much you earn versus how much you want to borrow. This is also known as the debt-to-income ratio or DTI.
If you try to borrow more money than you can pay back, then a lender will reject your application. Anyone with a DTI over 43% will struggle to get approval for their personal loan application. To maximize how much you can borrow, you can improve your DTI by paying off any existing debt.
When figuring out how much to borrow, you should look at how much you pay after tax. This is the figure that a lender will look at.
Anyone who works freelance has to prove that they earn more than anyone working in full-time employment. This is because their employment carries an element of risk with it. So freelancers will need to budget more.
You should also take into account the interest rates that the lender is offering. If you don’t pay off your personal loan no credit check quickly then you will have to pay off this extra. So if your income doesn’t allow for this then the lender will also reject your application.
Doing the maths also does you a favor in the long run. It ensures that you don’t get into debt that you cannot pay off. So it really is in your best interest.
5. Make Sure You Can Offer Collateral
In some cases, a lender will ask you to offer collateral against your loan. This ensures that they will get back the value of the loan one way or another over time.
Your collateral will be an item of your property which matches the value of the original loan and any interest that it accumulates over time. So what you can offer as collateral varies depending on how much you want to borrow.
A lender can claim back collateral if you fail to pay back a number of payments on your same day payday loan after a certain period of time. You will always get a warning before this happens. Depending on the value of the loan versus the collateral, they might take the whole item or they may only ask for part of it.
For example, you might use your home as collateral against a loan. If the loan plus interest matches the value of your home, then not paying it back entitles the lender to seize your property.
Alternatively, your collateral may be worth significantly more than your loan. For example, a $2,000 loan is worth a lot less than your home. In this case, you can sell off your home and use the sale to pay off your lender.
Obviously, using your collateral is a last resort for anyone paying off a loan. But offering collateral proves that you’re serious about paying back a loan, so it can help to get your application approved.
The Bottom Line
Getting a personal loan can enable you to take control of your finances. It could allow you to make that dream purchase or simply let you consolidate and relieve your debt. So follow these tips to avoid a rejected personal loan application.