In some situations, you can always do with some extra cash to meet your goals such as pursuing education, going on vacation or getting medical attention, just to mention a few.
Therefore, do you need something you can’t afford? You can sign up for a personal loan. But what if you don’t have any collateral? Here’s how to get approved for a loan.
Since the personal loans are unsecured (not borrowed with any asset as collateral), the lenders take up a high risk when availing funds to the borrowers. Therefore, they provide this type of loans at higher interest rates and are prefer to provide loans to customers with a higher credit score.
When you do not have any collateral that you can present to qualify for a personal loan, the lenders will mainly check your credit score. Know your FICO score before you start applying for loans. You should also get a copy of your credit report so as to get a bigger picture of your financial situation.
Yearly reports are available from the three major credit bureaus in the US: TransUnion, Experian, and Equifax. You can then know the areas that you need to work on to increase your chances of getting a loan.
To improve your credit score, you can start off with living within your means and clearing the outstanding loans. You should also make an effort to pay your utility bills on time.
In case you feel that you may have been wrongly listed and your credit score and history has an error, you can submit a written dispute. This letter should be addressed to the credit company that reported the issue. The Consumer Financial Protection Bureau also receives complaints.
What to Consider as You Look for an Unsecured Personal Loan
The factors that you need to put into consideration as you search and apply for a personal loan include:
- Loan amount
Decide how much you need. This should be adequate to meet your goal.
- Interest rates
Knowing that you have no collateral to provide to get a secured loan, you may end up being charged a higher interest rate. However, you can look for lenders who provide loans at fairly lower interest rates.
- Requirements for a personal loan
When applying for a loan, there is basically information that you should give. This includes your address, bio-data, social security information, and employment status and history.
- Loan terms
Understand the loan that you are getting as well as the terms that you shall bind yourself to. The important information that you should take note of includes the payment method, payment amount and the loan period.
How to Get Approved for a Loan Without Collateral
There are various ways in which you can improve your chances of getting a loan when you do not have any collateral. These include:
1. Prove That You Have a Stable Income
The lenders mainly want to be sure you are capable of repaying the loan amount. If you prove that you have a steady flow of income and are employed, they may approve your loans application. Your income and employment history is used to determine your financial future.
Some lenders may request that you provide certified copies of your payslip and some may even make contact with your employer to verify the information you have submitted. If you are in business, you may have to prove that your company is in a financially stable position.
2. Have a Co-Signer
When you request for a loan with a creditworthy co-signer, your chances of getting the loan approved increase. The lender will then consider that your cosigner has a better credit score and award the loan. It is advisable that you choose someone who is close to you and make sure to pay the loan on time to increase your chances of being approved for future loans.
Also, you would not want to ruin your relationship with the cosigner, so do not drag them into any debt. Your co-signor will be acting in good faith to help you. Although they are your guarantors, it is not an ideal situation to have them pay your loans.
It is also good to have a candid conversation with them since you may not foresee situations which may make it impossible for you to pay back the loan. Having a co-signor is also one of the ways of getting a loan when you have no salary.
3. Get a Credit Card
Your debt utilization (debt-to-income) ratio directly impacts your credit score and it is a factor that lenders consider when processing loan applications. When you are in a bad financial situation, you may try to increase your income. However, if this is not practical, your spending will still be more than your income.
To lower your debt-to-income ratio, you can get a credit card and practice careful spending. Unsecured credit cards are available in case you have bad credit.
Avoid canceling your current credit card, if possible. This is because it may not look good when the lender is considering your credit history. The choice of requesting for your credit card limit to be increased should be well-thought as this may be a risky move.
4. Approach Your Bank
If you bank with a reputable bank and you have been a good client, you can approach your bank and apply for a loan. You will also have to bank on the fact that you need a good credit score to qualify for an unsecured loan.
A signature loan, also known as a character loan, can then be awarded to you. Your bank already has your information and a history of your transactions. Therefore, they will probably have the confidence to provide you with an unsecured loan.
5. Consider Joining a Credit Union
Credit unions have lesser regulations to follow, compared to financial institutions. They also do not focus too much on your credit score or possession of the collateral.
What they consider is mainly your ability to pay the loan. If you are employed, you can reach out to your company credit union so as to get a personal loan at friendly terms. In addition to this, they also provide financial counseling.
6. Peer-To-Peer (P2P) Loans
Peer-to-peer lending is a popular choice for many when looking for unsecured loans. Although your credit score will be looked into, you have to provide a compelling reason as to why the loan should be awarded to you.
You should look for a lending platform which is secure, trusted and with solid loan processing, repayment and tracking procedures. Luckily, you can research on the peer-to-peer lending platforms online and also check their ratings on the Better Business Bureau.
7. Online Loans
Technology has made almost everything to be just a click away, even loans! You may be facing an emergency situation and need cash real quick. Online loans are a solution and in most cases, these loans require no collateral.
The online loan will require that you pass the credit check and also have attained the minimum age of 18 years old, have a US bank account, with no outstanding personal loans. You must also prove that you have a regular monthly income.
The advantage of this type of loan is that you have a higher chance of approval and your ability to repay will determine the amount to be provided as a loan. Also, it is simple to submit your loan application and very often, the loan approval is done quickly.
8. Installment Loans
This type of loan is one in which you take up a lump sum amount and then repay it in fixed payment amounts over a fixed period of time. You can search for an installment loan which will meet your needs and also be possible for you to pay back comfortably.
The advantage that this type of loan offers you with is that it has predictable loan repayments and it makes it easier for you to plan to pay it back and budget your finances well. You can also know when you will be able to complete the loan payment and ensure that you have enough funds to pay the loan.
9. Payday Loans
You may have an urgent financial need to be met and require a quick loan that will enable you to handle the situation. A payday loan may come in handy in this time since the lender will have the assurance that the amount borrowed will be paid back on the next day you will receive your salary.
10. Request a Loan for the Amount You Need
When taking out a loan, ensure that the amount you are taking is sufficient for you to meet your goal. When you are requesting for a high amount as an unsecured loan, this may be viewed as too risky by the bank or lender.
Note that the higher the loan amount, the higher the internet rate. Request for an amount that you will be comfortable paying back within the set time while being able to meet your monthly expenditure. Many lenders have loan calculators on their site so you can do the math yourself to get an idea of all the amounts you will be dealing with by taking out the loan.
Bank Loan Requirements
To get approval for a loan, you will need to meet the bank loan requirements. The bank aims to be paid back fully and on time. Therefore, borrowers who meet the requirements stand a higher chance of getting loans.
Bank loan requirements are also determined by the regulations that the banks adhere to. Banks will require you to provide a government-issued ID. This can be a birth certificate, passport, driver’s license, State ID, certificate of citizenship, military ID or utility bill.
In addition to this, you will have to meet the minimum income requirements. To verify your income, you may have to provide bank statements, tax returns or pay stubs.
Additional information on your assets, debts, and liabilities will also be required. These include additional sources of income, your current loan and credit card, rent or mortgage statements, and an estimate of your current expenses.
When Should You Apply for a Personal Unsecured Loan?
You are ready to apply for a personal unsecured loan when you have picked the best type of loan, researched on the competition and what they have on offer, improved your credit score and you are aware of your interest payments.
You should also apply for a loan when you are in a financially stable position, with a constant flow of income. To make the process to be quick and easy, get all your documents ready so that you may present them upon request. You can also scan the required documents beforehand so as to simply mail them when required to do so.
Make Good Financial Choices
You ought to conduct plenty of research before you make a loan application. Find out the financial institution which will be able to provide you with a loan at reasonable interest rates. Also, you should determine the repayment period and the monthly installments.
It is important that you find out if there will be any hidden fees. You can negotiate for terms that will suit both you and the lenders.
Apply for a loan from institutions which will be likely to award you with the loan. Having multiple loan applications can have a bad effect on your credit score.
Avoid payday lenders who exploit borrowers. These types of loans may be offered quickly and with no need to provide collateral. However, they have high-interest rates and will limit your chances of making an improvement in your financial situation.
Payday loans have the tendency of keeping you in a cycle of debt. When looking for online lenders, make sure that you will only deal with genuine lenders.
Still Wondering How to Get Approved for a Loan?
We believe that no situation is permanent, especially when it comes to having a financial crisis. You can a personal unsecured loan to turn your situation around for the better. With Bonsai Finance, you can get everything in order and only get better with each passing day.
How to get approved for a loan just got easier. Apply now for an unsecured loan.
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