Are you financially strapped and need cash right away? Personal loans are an option to get the funds you need. But how do you know if you’ll get approved?
In this article, we’ll cover personal loan options, the steps you should take to get approved and what to do if your application is denied.
Let’s jump right in.
Types of Personal Loans
Most financial institutions offer two types of personal loans:
- Secured personal loan: a loan that is protected by some form of collateral, such as an automobile or home
- Unsecured personal loan: a loan that is not protected by collateral
If you have less than perfect credit, a secured personal loan may be your only option since it’s less risky to the lender.
Do you have a steady source of income?
What matters most to lenders is your ability to repay the loan on time. If you don’t have a steady source of income, the lender may reject your application. Lenders also consider your credit utilization ratio — that is how much you’re using of your available credit. If it’s too high, the lender may think you’re overextended and reject the application.
The lender may request:
- recent copies of your W2
- 1099 forms
- tax returns
- bank statements.
If you fail to provide the requested documentation, the lender could reject your application. Also, be sure to complete the application in its entirety to expedite processing.
Steps to get approved for a personal loan
There’s no way to guarantee a lender will approve your loan application, but here are some tips to increase your approval odds:
Step 1. Check your credit score
Before applying, take a moment to review your credit report. You can get it for free through Credit Sesame. If you find an error, file a dispute before applying for a personal loan.
Don’t worry if your score is below 600 and your credit report is accurate. It doesn’t mean you won’t qualify for a loan. However, your interest rate may be higher to help the lender hedge against the risk of default. And in some instances, you may only qualify for a secured loan. So, it may be best to improve your credit score before applying.
Step 2. Shop around for lenders
Going with the first lender that sends you a letter in the mail could be a recipe for disaster. Shop around to see who has the best rates. Don’t know where to start? SuperMoney has you covered with a comprehensive list of the best personal loans on the market.
To avoid multiple hits to your credit, check whether you meet the lender’ qualification criteria before you apply for a loan. Some lenders also offer screening tools on their website to help you determine if you pre-qualify without a hard pull to your credit.
Step 4. Submit the application
Be sure to complete the form in its entirety and include any supporting documentation requested by the lender. Otherwise, the lender may reject your application.
What to do if your application is denied
If you receive a rejection notice from the lender, consider the following options:
- Contact the lender. Plead your case and request a second review.
- Consider other lenders. Do you recall the list you made in step 3? You may want to return to the drawing board.
- Lower the requested loan amount. This could increase your approval odds with another lender.
Still no luck? If you decide to apply for a high-interest for people with bad credit, read the fine print to know exactly what you’re getting into.
Otherwise, take your time to improve your credit rating so you can qualify for a loan with a competitive rate. Also, consider getting help from a credit repair company. Use SuperMoney’s comparison tool to check out user reviews from several reputable credit repair companies.
A final thought
Dealing with a financial hardship is stressful, but personal loans can provide some relief. Follow the suggested steps to streamline the process. Finally, use SuperMoney’s personal loans tool to evaluate options that are suitable for you.