How To Get Approved For A Personal Loan
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How To Get Your Personal Loan Approved
Qualifying for a personal loan typically requires three basic elements, a credit score, payment history, and a stable income. When you look at these three basic elements they each are more complex and can be broken down even further to give you a better understanding of what is needed to qualify for a personal loan. Continue reading below to learn about the best way to get approved for a personal loan.
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The easiest type of lender to get approved for is Payday lenders. There is typically no credit check for a payday loan, however, in return, you may be subject to APRs as high as 350% or even 400% in addition to any other fees the payday lender may have.
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What do you need to qualify for a personal loan?
Qualifying for a personal loan typically requires three basic elements, a credit score, payment history, and a stable income. When you look at these three basic elements they each are more complex and can be broken down even further to give you a better understanding of what is needed to qualify for a personal loan.
Credit score: Most, if not every, lender will look at your credit score when you are applying for a personal loan. If you are just starting out and do not have any credit history, then you most likely will not have much of a credit score and will need to take steps to develop one. If you have established a credit score, you should know what your score is before applying for a loan. Most lenders have 4 categories of credit scores ranging from excellent to bad. Knowing which category your score falls into can help you determine what rate, term, and loan amount you might qualify for. Most lenders look for at least a minimum credit score of 600 to qualify for a personal loan, however, many lenders are going to need to see a credit score as high as 660 or 680 to qualify. If you have a credit score below 600, you may still be eligible for a personal loan from a few lenders if you have a score above 560 but be prepared to pay higher interest rates and more fees.
Payment history: Your payment history is the most important part of your credit score. Payment history alone makes up 35% of your credit score. The longer you have a perfect or near-perfect payment history, the better your credit score will most likely become. The opposite is true as well. Even one late or missed payment can greatly affect your credit score in a negative way.
Stable income: Demonstrating to a lender that you have a stable income coming in is almost as important as your credit score. Lenders want to know that you are going to be able to pay your monthly payment on time and in full each month. Lenders may want to see pay stubs, tax returns, 1099-s, and anything that can prove that you have an extensive record of income.
What type of loan is easiest to get approved for?
Some of the easiest loans to get approved for are the ones you should try to avoid if at all possible. These would include no-credit-check loans, Payday loans, bad credit loans, and cash title loans.
No-credit-check loans: No-credit-check loans are exactly as it says. You do not need to pass a credit check in order to obtain the loan, however, you can expect interest rates to be near 36% with the possibility of other fees.
Payday loans: Payday loans are microloans that are expected to be paid back from your next paycheck. To qualify for a payday loan there is no credit check, however, in exchange, you most likely will need to pay an APR of nearly 350% or 400%.
Bad-credit loans: Bad-credit loans are a little better than no-credit-check loans because you may pay a lower interest rate, but the interest rates are still going to be excessive. You may need a credit score of 560 or above to qualify.
Cash title loans: Cash title loans are short-term loans that use your car as collateral in order to get a small cash microloan that needs to be paid off typically within 30-days from when the loan is executed. This can be a dangerous loan to take on if there is even the slightest possibility that you may not be able to pay back the loan. If you cannot pay the loan before the loan due date, you can lose your car.
What type of lender is easiest to get approved for?
The easiest type of lender to get approved for is Payday lenders. There is typically no credit check for a payday loan, however, in return, you may be subject to APRs as high as 350% or even 400% in addition to any other fees the payday lender may have. Additionally, if you are unable to pay your loan at the due date, you could be subject to even more penalties or be asked to take out a new payday loan to cover the previous loan. This is called the debt spiral and it may be in your best interest to avoid this at all costs. Nonetheless, here are what payday loan centers typically require to receive a payday loan.
Social security number
Proof of income
Active checking account
Copy of a personal check
Why is it so hard to get a personal loan?
It actually is not that hard to get a personal loan, however, there are some strict requirements when it comes to credit history and income/employment status. This is especially true for unsecured personal loans where there is no collateral involved that the lender can seize if you are unable to pay. When you take out a loan from a lender, the lender is making an investment in your ability to pay them back. In return, the lender is rewarded with the interest and potential fees you will pay on the loan. If you are unable to pay them back, the lender loses money. This is why it is not the process of obtaining a loan that is difficult, it is the screening process.
Why is payment history so important?
Payment history is extremely important. That is why it comprises about 35% of your overall credit score. Your payment history demonstrates your ability to pay back your debts in a timely manner. This is one of the most important and fundamental parts of a loan. Lenders who extend loans to borrowers want to be reassured that in the end they will be paid, and not just paid in full, but on time. Every type of creditor may want to look at this portion of your credit history first whether they are a mortgage lender, personal loan lender, credit card company, or a furniture store offering in-store financing.
It is estimated that a late payment can drop the average consumer's credit score as much as 90 or 110 points. However, do not panic if you are late by a day or two. Typically, late payments are not reported to the credit bureaus until the account has been late for at least 30-days.
How can you improve your overall credit?
If you are looking to improve your overall credit score, there are many actions that you can take to do so. Some actions may have an immediate effect on your credit while others may take more time to produce results. Before you can improve your overall credit score, the first thing you should do is obtain a copy of your credit report from each of the three main credit reporting agencies. All US consumers are entitled to one free copy of their credit report for each of the agencies once every 12-months. You can either contact the credit bureaus directly to obtain these free reports, or you can go online and find a free credit monitoring service that can provide you with all the information you need. Some credit card companies even provide this service for free for customers.
When you have your free credit reports, examine all three to make sure that they are identical and no information is different on one report than another. If the three reports are identical, then you should see if all the information is correct and there are no errors. If you identify any errors, you should address them immediately to ensure that they are correct and resolved. If the reports are error-free, examine your credit reports and look to see if you have any delinquent accounts. Resolving delinquent accounts may do wonders to improve your credit score. It may take a bit to see the results, however, the results could be dramatically effective. If you do resolve any delinquent accounts sitting in collections, it is important that you get everything in writing and that you are reassured that the account will report the account closed to all three credit bureaus.
Next, take a look at your lines of revolving credit. If you have any extra money in savings, you may want to consider paying down those revolving lines of credit to decrease your credit utilization ratio. This can potentially have the most dramatic effect on your credit score, and the results may be seen much sooner than other actions you consider taking.
After paying down revolving lines of credit and taking care of any potential delinquent accounts, there are two more basic actions you can take to improve your credit. First, keep making all your payments on time and do not miss a single due date. Payment history is extremely important to maintain a healthy credit score. Next, do not take out any new lines of credit unless you are thinking of pursuing a debt consolidation loan which could also be an effective option to improve your credit score, however, the results may take longer to be seen.
How do you prove income for a personal loan
Proving your income to a lender is one of the most important parts of applying for a personal loan. In order to show proof of income, you may present pay stubs, tax returns, W-2s and 1099s, bank statements, and your employer's contact information. If you are self-employed, then lenders may want to see bank statements, 1099s, income tax returns, and/or profit-loss statements. The lender should provide you with a list of acceptable documentation.
These kinds of documents will be essential to let a lender know where and how you get your income as well as how much you have coming in each month. They will compare your income against your current debt listed in your credit report. This is called your debt-to-income ratio. Some lenders may allow a debt-to-income ratio as high as 43% for a personal loan, however, it is preferred that a potential borrower has a debt-to-income ratio below 36%.
If you have a solid payment history or excellent credit score, the lender may not request proof of income. However, in most cases, lenders will want to see some type of proof of ability to repay or income. Lenders will likely want to see how much income you have coming and how much debt you already have. They need to be confident that you can afford your monthly payment while keeping up with other financial commitments.
How much should you borrow with a personal loan?
Personal loans have a maximum ceiling of $100,000. However, a basic principle to follow may be to always borrow within your means and always spend only what you can afford. When you are looking at personal loans, how much you want to borrow depends on what the purpose of the loan is. If you are looking to install a new concrete driveway and you need $15,000 to do so. If you can afford it, and you qualify for the loan, then yes, you could borrow $15,000. If you are taking out a debt consolidation loan for $22,000, then yes, borrow $22,000. Just always only borrow what you can afford.
What sort of documentation is required for a personal loan?
To apply for a personal loan there are several types of documentation that you may need. Once you have applied for a loan or prequalification, the lender may request certain documentation. Documentation requested can vary on a case-by-case basis. Having any documents that may be requested gathered and readily available prior to applying can help expedite the process. As a result, you can receive funds faster.
Here are the three basic types of documents that you may need to make sure your loan application gets processed smoothly.
Identification documents: To verify that you are a legal resident in the United States at that you are at least 18-years of age, you will need two forms of identification. Examples of acceptable identification documents are a driver's license, passport, state-issued ID, Certificate of citizenship, birth certificate, military ID, and a social security card.
Income verification: Lenders will want to see proof of a stable income. In order to show proof of income, you may present pay stubs, tax returns, W-2s and 1099s, bank statements, and your employer's contact information.
Proof of address: Lenders will want to see that the address on the loan application is truly yours. In order to show proof of address, you may present a utility bill, lease, mortgage statement, proof of insurance, voter registration card, property tax receipt, bank and/or credit card statements. You only need one of these.
These are the three basic documents types you may need to present to the lender in addition to the loan application.
Do co-signers affect the chances of getting approved for a personal loan?
Yes, co-signers can greatly affect the chances of getting approved for a personal loan. If you have bad credit, a co-signer with good or excellent credit can help you to qualify for a personal loan. If you do get a co-signer, be sure you only borrow what you can afford to make the monthly payments on because they will become responsible for those payments if you are not and you can damage their credit. These kinds of situations can adversely affect personal relationships.
How do you choose the right lender for personal loan approval?
The best way to choose the right lender for a personal loan is to prequalify. Once you prequalify, you can see all your personal loan options side-by-side making it easy to choose the right lender. Comparing offers is an important part of choosing the right lender. Taking advantage of online platforms such as Acorn Finance can make choosing the right lender easier. At Acorn Finance you can check offers from top national lenders within 60 seconds or less. Your credit will not be impacted by checking offers at Acorn Finance.
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