Applying for a personal loan and being approved for it may seem daunting. Just the idea of filling out all the papers and meetings with your lender can prevent you from trying to get financing.
Personal loans are no longer an elusive goal that only people with excellent credit ratings and perfect credit history can achieve. Anyone with any credit can now be approved for a personal loan, regardless of the type of costs you need to cover:
- DIY debt consolidation
- Urgent and unexpected expenses
- Medical expenses
- Moving expenses
- Big Purchases
Guaranteed vs. Not guaranteed
Before being approved for a personal loan, you need to determine what type of loan you want, can afford and ultimately can be approved for. Applying for the right type of loan should increase your chances of being approved. In general, we can separate personal loans into two categories: secured and unsecured.
A secured personal loan requires you, the borrower, to guarantee your loan. This type of loan is less risky for the lender and thus often offered to potential borrowers who have a lower credit rating or who have experienced financial problems in the past. There is a wide range of goods that you can use as collateral, but here are the most common:
- Recreational vehicles
Since your property is used as collateral, the lender may foreclose you in the absence of payments.
An unsecured personal loan does not require to be secured by the borrower. Unsecured loans sometimes have higher interest rates in that they carry more risk for the lender. You will also need to have an excellent credit rating.
If you want to be approved for a personal loan, we suggest that you be as honest as possible towards yourself. If your credit rating is lower than what you would like, discuss the secured loan option with your lender. We believe that it is better to apply for a loan that you are more likely to get than wasting your time with a type of loan that you are less likely to obtain.
Approved vs. Preapproved
Being pre-approved for a loan means that your potential lender is ready to give you an amount of money at a specific interest rate based on certain factors, such as your income, credit rating and credit history. There are two kinds of pre-approval: lenders can simply offer you a pre-approval through a written letter or you can ask for it.
How can a pre-approval help you get the personal loan you want? A pre-approval is a tool that you can use to speed up your loan process. This will not necessarily increase your chances of being approved but will allow you to go to another lender and not waste your time waiting for approval.
Choosing the best lender for your situation
Another way to increase your chances of approval for a personal loan is to choose a lender who wants to work with you based on your credit rating. If it is low, around 650 or less, most banks or other financial institutions will surely reject you. And if this is not the case, you will receive offers at high-interest rates. You should work instead with an alternative lender who specializes in providing help to financially constrained people. Avoid only payday lenders and other predatory lenders who are desperately seeking prey.
Why not online lenders?
Alternative lenders online are generally more enthusiastic about working with you, and their qualification criteria much more flexible. They are less reliant on credit rating and can offer a personalized service. The application process for this loan is usually streamlined and can be completed in the comfort of your living room: no need to visit your lender’s offices over and over again.
Importance of your debt/income ratio
When applying for a personal loan, you must consider your debt/income ratio. This ratio measures how much of your gross income you are spending on debt repayment. In Canada, a debt/income ratio of 36% is considered healthy. Beyond that, you could see your chances of approval for a loan decrease.
If a large percentage of your income is already allocated to pay off your debts, you may have difficulty getting approval and should repay some of your other debts before applying for a new loan.
What about bankruptcy?
Bankruptcy is another factor that can affect your chances of approval. If you are currently in a bankruptcy process, there is a very good chance that you will not find a lender ready to approve you. Know that if this happens, and that he is ready to give you a new loan while you are in the middle of a bankruptcy, you might be dealing with a scam.
The good news is that once your bankruptcy is complete, your chances of approval will automatically increase. You will have to work a little harder to prove your creditworthiness and may have to have to accept a loan offer at a higher interest rate but you should be able to get the loan you want.
Do banks offer personal loans?
Banks offer personal loans, but their requirements are generally stricter and may make approval more difficult. It depends completely on your financial situation and you should consider doing business with an online lender who specializes in personal loans instead.
Guarantee a personal loan
In order to guarantee the personal loan you want, make sure you have all the relevant information and documentation as required by your lender. So be sure to do everything you can to make your lender’s job easier. That means :
- Completely complete your entire application
- Quickly make any required document
- Be open and honest about your income and any other debt you may have
- Follow up for any further information to give
The application for a personal loan does not have to be a horrible experience. If you are well prepared and know what to expect, you should be able to get the financing you want from an excellent lender who understands your needs.