Getting approved for a personal loan isn’t always a guarantee, especially if you have less-than-perfect credit or a high debt load.
But the good news is, there are steps you can take to improve your chances of approval and secure the funds you need.
Whether you’re looking to consolidate debt, cover an emergency expense, or finance a big purchase, these six tips will help you increase your likelihood of success.
1. Check your credit score before applying
Your credit score is one of the first things lenders look at when reviewing a personal loan application. It’s crucial to know where you stand before you apply.
A higher credit score makes you a more attractive borrower, increasing your chances of approval and securing better loan terms.
Tip: If your credit score is lower than you’d like, take some time to improve it by paying down debt, making on-time payments, and disputing any inaccuracies on your credit report.
2. Reduce your debt-to-income (DTI) ratio
Lenders also consider your debt-to-income ratio, which is the percentage of your monthly income that goes toward paying debts.
A lower DTI shows that you have enough income to comfortably repay the loan. If your DTI is too high, lenders may see you as a risky borrower.
Tip: To lower your DTI, try paying off some existing debts before applying for a loan. Alternatively, increasing your income through a side hustle or additional work can help improve this ratio.
3. Apply for the right loan amount
It can be tempting to apply for a large loan, but asking for more money than you need may hurt your chances of approval.
Lenders want to see that you’re borrowing an amount that makes sense for your financial situation.
Tip: Determine exactly how much you need to borrow and apply for that amount—nothing more. This shows lenders you’re responsible and not taking on unnecessary debt.
4. Have a stable income and employment history
Lenders want to see that you have a steady income and a stable job. This reassures them that you’ll be able to make regular loan payments.
If you’ve recently changed jobs or your income fluctuates, it may be worth waiting until you have a more stable financial picture before applying.
Tip: If possible, provide documentation such as pay stubs, tax returns, or a letter from your employer to verify your income stability.
5. Consider a co-signer
If you’re struggling to get approved for a loan on your own due to bad credit or high debt, applying with a co-signer can improve your chances.
A co-signer with good credit can boost your application by providing extra assurance to the lender.
Keep in mind, the co-signer will be responsible for the loan if you’re unable to make payments.
Tip: Make sure both you and the co-signer understand the responsibilities before applying together.
6. Compare lenders to find the best match
Different lenders have different requirements, and some may be more flexible than others.
Banks, credit unions, and online lenders all have varying criteria when it comes to loan approval.
Research and compare multiple lenders to find the one that best suits your credit score and financial situation.
Tip: Prequalify with multiple lenders to check your potential loan rates without affecting your credit score. This helps you compare offers and choose the most favorable option.
Set yourself up for success
Getting a personal loan approval can be easier when you take the right steps ahead of time.
By checking your credit score, lowering your debt-to-income ratio, applying for the right loan amount, and ensuring you have stable income, you can significantly boost your chances of success.
And if needed, don’t hesitate to explore options like adding a co-signer or comparing lenders to find the best fit.