When applying for a personal loan, facing rejection is the last thing you would want. But, because these loans are unsecured and have higher risk factors involved, the lenders are not very open to offer them as a part of their mortgage programs. So, getting approval for such loans is kind of difficult.
Personal loans are usually availed for reasons such as remodeling the house, planning an international trip, managing the debt consolidation, funding the medical expenses, making arrangements for the wedding and similar others.
These loans are not backed by any collateral asset. And, thus, the lender cannot auction anything you own in case of any default. However, he is going to charge you the rate of interest that is higher in comparison to other loans for the safety sake.
Now, because personal loans are extremely useful in almost every aspect, they are worth considering when making a purchase or investment. If you wish to boost the chances of getting approved for this loan, keep in mind the following tips –
- Calculate your Credit Score
A good FICO score is an indication of your ability to repay the loan. It is a method of quantifying and evaluating your creditworthiness based on your payment history, amounts owed, length of credit history, new credit and credit mix. The higher this score, the more are your chances of getting approved for a personal loan. So, if you have a lower score, it is recommended to wait and improve it by paying off your pending bills and debts.
- Avoid Filling Multiple Loan Applications
This is one of the major mistakes loan buyers make when looking for a personal loan. They send loan application forms to multiple lenders or financial institutions thinking to receive a response from at least one of them. However, such a move makes you seem desperate and gives a bad impression of your financial status. Moreover, you end up affecting your credit scores if you don’t get approval from them.
- Search for a Reliable Lender or Broker
You have to do ample homework to search for a good lender or mortgage broker. In case you are struggling with poor credit scores, you have to look for someone who specializes in high-risk borrowing. Stay away from payday and title loans because they can keep you in permanent debt, with their unrealistic fees. In fact, avoid every offer that seems too good to be true and instead derive an in-depth comparison to get the best deal and low-interest rates.
- Keep an Eye on your Debt-to-Income Ratio
At any given point of your life, spending more than forty percent of your income towards monthly loan repayments can be highly detrimental for your overall finances. Hence, if you earn $2500 a month, you shouldn’t be paying out more than $625 for your EMIs. By no means, your monthly debt should take a toll on your monthly gross income. Try to keep the debt-to-income ratio as low as possible and don’t borrow unless very necessary.