Smarter Lending: How to Get Approved for a Personal Loan

Do you need extra cash to pay off bills, do some home improvement, or make a big-ticket purchase? In today’s economy, it’s not unusual to need to borrow money from time to time.

Taking out a personal loan doesn’t have to be difficult. If you’re prepared, you can get your money in a hurry.

Fortunately, there are some things you can do to make the loan application process a little easier. 

Here are some tips for how to get approved for a personal loan.

What Is a Personal Loan?

You can get a personal loan from a variety of lenders, including traditional banks, online lenders, and credit unions. You receive a lump sum and pay the money back in monthly installments plus interest.

These types of loans are usually unsecured. Typically, you don’t need to pledge any collateral like a car title or bank account.

Interest rates on personal loans vary depending on the lender. Average rates can range between 10.6% to over 30%.

The interest rate you pay depends on various factors, including your credit score, income, and current debts. In most cases, you can use a personal loan for whatever you want.

Some lenders won’t allow you to use personal loans to pay for real estate, post-secondary college costs, or other investments.

Whether you need money to consolidate credit card debt, make home renovations, or have other reasons for a personal loan, taking some action now can improve your chances for approval.

Know Your Credit Score

It’s easier to get better terms and a lower interest rate with good credit. You should know your credit score before applying for a personal loan.

Most lenders will check your credit before approving a loan. This helps lenders determine how likely you are to pay back your loan.

If your credit score isn’t as high as you’d like it to be, you may still be able to get a personal loan. The interest rates and fees will probably be higher than they would otherwise.

Take the time to check your credit score. If you don’t need cash immediately, you can work on improving your credit.

You don’t need perfect credit to receive a personal loan. However, the higher your score, the more options you’ll have for a low-interest personal loan.

Borrow Only What You Need

Personal loan amounts can range from a few hundred dollars to thousands of dollars. The higher the dollar amount, the harder it is to qualify.

Before you apply for a loan, decide how much you need and what you can afford to repay each month. Thinking this through can keep you from borrowing too much and regretting it later.

Keep in mind that you have to repay every dollar you borrow plus interest. Borrowing too much can create financial issues later, so borrow just enough to meet your needs.

The last thing you need is a debt you can’t repay. Be sure to run the numbers to ensure a personal loan is a good choice for your financial needs.

Pay Off Debt

Lenders will consider the amount of debt you carry before giving you a loan. Having less revolving debt will improve your chances of being approved for a personal loan.

Consider paying down or paying off some of your existing debt before applying for a loan. It’s not necessary to pay off all your debt to get a personal loan.

Lenders will consider your debt-to-income ratio (DTI). This is the portion of the monthly income you use to pay off debt each month.

The higher your DTI, the more money you’re spending to pay off debt. If it’s too high, a new loan could stretch your finances too thin. 

Some lenders prefer a DTI lower than 36% while others accept a DTI up to 50%.

Shop Around for Loan Rates

Before settling for the first loan offer you receive, shop around for the best personal loan rates. Comparing lenders and loan types can help you get an idea of what you will qualify for.

Generally, you can get a personal loan from a bank, credit union, or online lender. If you’ve made positive financial decisions, a lender may be willing to overlook some past credit missteps.

Banks and credit unions are more likely to approve a personal loan for customers who have a longstanding relationship with them.

Some lenders use a soft credit check. This allows you to get prequalified for a personal loan without it impacting your credit score.

Check with the lenders you’re considering and ask whether they offer a prequalification process. Once you know your credit score and how much money you need, you can compare estimated rates to help you choose the right lender.

Provide the Requested Documentation

Lenders have different requirements for what information you need to apply for a personal loan. After submitting your application, the lender may ask for additional documentation.

The documentation you may need includes:

• Two forms of Identification such as a driver’s license or military ID
• Proof of income such as tax returns, W-2s, 1099s, or paystubs
• Proof of residence such as a lease agreement or mortgage statement
• Employer information, including the business name and employer’s name 

The faster you provide this information, the sooner you’ll receive a decision about your loan. It’s a good idea to gather this information before applying for a loan to help speed up the process.

Read the Fine Print

Once you’ve narrowed down your loan options, be sure to read the terms and ask any questions you may have. Pay attention to:

• Origination fees, prepayment options, and late fees
• Total APR including fees
• Interest Rates
• Automatic payment options
• Limitations on what you can use the money for
• Customer-friendly features such as changing payment dates

It’s important to read the terms of the loan carefully, including the fine print. You don’t want any surprises after accepting the loan.

Applying for a Loan

Applying for a personal loan is usually a simple, straightforward process. Most lenders offer an online application, although some lenders  require you to apply in person.

The application process varies depending on the lender. Typically you’ll need identification, proof of address, and proof of income. 

Answer all questions accurately. Provide the necessary documents they request for approval. After you submit the application, the lender will run a credit check. 

Remember that running a credit check may lower your credit score for a short period.

Getting a Loan When You Have Poor Credit

If your credit score is below 640 due to financial troubles in the past or a lack of  established credit, your loan options are more limited. But you do have options.

There are lenders willing to work with you if you have poor or no credit. If this is your situation, you can expect a higher interest rate on your loan.

The lender may require collateral or a cosigner before approving a personal loan. If you must provide collateral, be careful.

If you don’t repay the loan, you could lose your collateral, which may be a valuable asset like your car. The best thing you can do to get a loan in the future is to pay your credit cards on time, correct errors on your credit report, and lower your debt-to-income ratio.

Get the Timing Right

Are you considering applying for a personal loan soon? The earlier you start preparing to apply, the better.

Planning ahead gives you time to build a relationship with your lender to boost your chances for approval. It’s important to apply for a loan at the right time.

Sometimes it makes sense to wait before applying for a loan. If you know your income will increase in a few months, consider waiting until then.

If you’re working to improve your credit score, waiting may give you a better chance for more favorable terms and lower interest rates.

If you need cash now for an emergency and can’t wait, there are lenders who will work with you.

How to Get Approved for a Personal loan

Life never goes as planned. And most people need a little financial help from time to time. 

If you need some extra cash, it’s good to know how to get approved for a personal loan. Whether you need cash to consolidate your debt, pay down medical bills, or for some other need, a personal loan may be the right solution for you.

Take the time to do some research and find the right lender for your needs. At Fast Loan Direct, you can get a personal loan tailored just for you.

A simple online application is all it takes to get the money you need fast.

Contact us today to connect with a lender.