Due to stricter lending requirements, it has become increasingly difficult to get approved for a loan over the past few years. Before jumping in and searching for a loan, it is important to make sure you are properly prepared. The following tips can help increase the odds of getting your loan application approved.
1. Know what is in your credit report.
Your credit score is one of the primary factors that banks look at when determining whether or not to approve your application. If you have a low credit score or if there are significant problems showing up on your credit report, it could keep you from getting approved. Before you start the process of applying for loans, order a copy of your credit report from all three of the credit bureaus. Go through the reports line by line, looking for any errors. If you find any inaccuracies, follow the dispute process to have them corrected or removed from your report. By doing so, you may be able to increase your credit score.
2. Decrease the total amount of debt that you have.
If you have too much debt, lenders are unlikely to approve your loan. When deciding whether or not to give you a loan, they will look at the amount of money that you have to pay each month toward your existing debt in comparison to the amount of income that you have coming in. This figure, which is known as your debt-to-income ratio, plays a significant role in your chances of getting approved. Ideally, this figure should be lower than 43% if you are planning on taking out a mortgage. Lenders may be a bit more flexible with this percentage when it comes to smaller personal loans or auto loans.
3. Avoid borrowing more money than you need.
Banks like to know how the money they are lending you is going to be spent. If you try to take out a loan that is larger than you need, they will want to know where the extra money is going. For instance, if you are planning a major home improvement project that is estimated to cost $10,000, you shouldn’t apply for a loan that is any higher than that amount. Otherwise, the loan could be viewed as carrying too much risk, decreasing your chances of getting approved. Additionally, taking out a larger loan means that your monthly payments will be higher and you will pay more interest over the life of the loan. You may even have to pay higher loan origination fees, which can add to the total cost. If you want a competitive rate in the first instance, check out these offers from Money Expert.
4. Be prepared.
Before you begin applying for loans, gather together all of the documentation that you may need. This includes everything from your pay stubs and bank statements to your tax returns. This can make it easier to fill out the applications, ensuring that you get through the process as quickly as possible.
Taking out a loan from a bank is a relatively straightforward process. The more prepared you are, however, the more likely you are to be approved. By making sure your credit report is in good shape, paying down your debt, and gathering together all of the documentation that you need, you can increase your chances of getting approved. From there, it is simply a matter of comparing lenders to find the one that offers the best terms and the lowest fees.