If you need money for your expenses, take a vacation or a wedding, then there is a good chance you have considered a personal loan. This is a type of loan where you don’t have to put up collateral that the lender will take if you fail to pay the loan. This will translate to a higher interest rate.
When done right, a personal loan can save you a significant amount when compared to payday loans, pawnshops, or overdraft. They do have their own cons. There are some lenders who will charge you a lot of fees and interest rates.
Below are six tips to help you in getting approved and qualifying for better terms.
Determine the type of loan you need
Personal loan for many people are types of loans that are closed-end installment and unsecured. Technically, car loans, payday loans, mortgage, and credit loans are personal loans, the opposite of business loans.
If you apply for a loan but don’t have the required credit score, the lender will offer you a secured loan instead. If you are willing to use your car or home as collateral, you are able to get better rate and terms. The downside is the fact you can lose the collateral if you fail to pay.
Check the Credit Score
Don’t bother applying for a loan that you can qualify because you want to try your luck. Your credit score takes a hit when you apply because it gets reported. This will have an effect if it is rejected.
You should request your credit report once a year, which is free, in order to know if there are any false or inaccurate statements. Once you get it, go to the lender and ask them about the guidelines they use to approve the loan.
Improve Your Credit Score
If you have a credit score of 770, you are in the right place, and increasing it to 790 will not have an impact. If you have a score of 680, improving it to 700 will make a lot of difference because it improves chances of approval and lowers interest rates.
Pay your bills on time and reduce your debt to credit ratio if you want to improve your score. If you deal a payment, It is a good idea to wait for six months and avoid making sure you are not late for any other payment will help.
Choose the right lender for your credit score.
If you have a score of below 700, you can expect to be turned down by many of the banks. If they don’t turn you away, they will have high-interest rates for the loan, there is very slim chance of approval when you have scores of less than 640.
Even if your credit scores limits your options, there are some lenders who have specialized in such scores. You should be careful who you choose from these lenders. Don’t choose short-term payday lenders at all. This is because the charge high fees and they will push you to a cycle of renewing the loans.
Find an online lender who has specialized in low-credit borrowers. There are some that are not required to report to credit agencies, if you find such, consider it because it will improve your credit score.
Only Consider Reputable Online Lenders
Online is the better choice because it saves you a lot of time and money you would have used to go from one lending institution to the next. Online lenders have lower operating costs, and this enables them to offer lower rates.
Remember there are some shady online lenders who will guarantee a loan but they are just interested in the advance fees. Ensure the online lender you are choosing has been licensed as a financial institution by the state and there are no lawsuits against it. Check their profile at the Better Business Bureau and see their rating.
Pay attention to debt to income ratio
You should apply for as little money as possible, and ensure you don’t over or under-report your income. There are some lenders who will overlook the borderline credit score if the income is high compared to the amount you are borrowing. You can also include the income of your spouse it the guidelines allow it.
It is a bad idea to lie about your income on the application. You can sometimes be tempted to do this if the lender doesn’t ask for documents proving your income level. You can face criminal charges if you do this, especially if you fail to make the payments.