There’s nothing that makes you feel worse than applying for a much needed loan and having it rejected. If applying for a mortgage to buy a property, and you are rejected for the loan, it can be a heartbreaking experience.
At some point in our lives, many of us are going to need to borrow money for something. It may be to buy a car, buy a house, or even consolidate some accounts together to reduce the interest rates, and monthly payments.
Getting a secured loan can be easier in some instances due to the fact there is something securing the loan; there is collateral securing the loan. If the agreed payments are not paid, the lender has something they can take back.
Unsecured loans have no collateral, and as such can be more difficult to qualify for. You apply for the loan, and if approved the lender gives you the money. The lender has nothing to take back should you not pay, and would need to use other collection methods to get paid.
With some unsecured loans and open lines of credit, such as with credit cards, you can use the loan for whatever purpose you wish.
There are a few things you can do to improve your chances of getting a loan approved. Follow these tips and your odds will improve, especially if you have bad credit.
Review Your Credit History
One of your first ports of call in order to improve your chances of being approved for a loan is to review your credit report.
You need to know what is on the report and also what your credit score is. Your credit score is used by lenders, in part, to determine as to if they will grant your loan or not. The higher your credit score, the better your chances of having your loan approved.
You also need to look for any errors or erroneous information on your credit history. If there is something there that is incorrect, or should not be there, you need to have it corrected.
You can correct errors on your credit report in two ways. You can contact the creditor that has reported the account that has the error, and request they investigate and correct the error, or you can contact the credit bureau themselves to investigate the error. If there is something on your credit report that you need to address, not an error, but some circumstance that caused an issue, you can have a Notice of Correction placed on your credit report.
It is important to check your credit history from time-to-time to know what is there.
In reviewing your credit report and credit score, and applying for a loan, one of the factors that affect your credit score is how many searches, or inquiries there are on your credit report. Too many of these searches will reduce your credit score, which is bad.
Some lenders may request additional documents from you in order to underwrite or process your loan application.
If you have wage statements nearby, bank statements, monthly bills, and even a detailed income and expense sheet prepared, it can make the process go smoother and quicker.
This is not just being able to show you can afford the loan though income and expenses and wage statements, but stay within your means.
If you are consolidating a couple of credit cards and the balances total £5,000, then request a loan for $5,000.
Requesting a higher amount, especially without being able to show why you are requesting that amount, could cause the loan to be rejected.
Choose the Right Loan
You need to choose the right loan for what you are looking to borrow for.
Obviously if you want to finance a car, going to specific lender that specialises in car loans is going to make the process easier and improve your chances of being approved.
You also need to have a good reason for the loan. Lenders will ask you, what is the loan for?
Requesting a loan to go on holiday, or using a short-term loan for a night out, is a red flag to lenders. Unless you have stellar credit, the odds are against you in getting the loan approved.
Go To Your Bank
If you have a chequing and savings account with your local bank, or have been banking with your bank for years, why not start there for your loan. They know you.
By going to your bank where you have banked for years, and they can see your wages being paid in, and also what direct debits and standing orders you have, and also your account activity, can improve your chances on getting the loan approved.
If you feel your credit is not as strong as you think it should be in order to get a loan approved, you can look at some unconventional ways to show you are a good risk to a lender, and that is through references, and showing you pay other bills on time.
You can request a reference from your landlord, stating you pay your rent on time and have been a model tenant.
You can show that you pay your contract mobile phone, gas, electric, and other bills you have in a timely manner.
And lastly, you could look into getting a guarantor for the loan. Someone to guarantee the loan for you.