Getting rejected by a bank or private lender doesn't just hurt the ego, it can also restrict you from paying for essential purchases and bills, not to mention your credit score takes a hit every time you get a loan application rejected. Luckily, you don't have to just sit there and watch your loan application get rejected and thrown into the trash bin. There are ways to improve your chances of getting approved for the loan you need and the interest rates you want. Here are five of them:
Prior applying for any kind of loan, whether it's home or car loan, secure a free copy of your credit report from any of the three credit bureaus, namely Experian, TransUnion, and Equifax. This will give you a clear idea of what lenders see when they do a background check on your finances amidst your loan application. Check the document for any grammatical errors or outdated information that might be pulling your score down. If you do happen to spot an error, notify the bureau immediately. In some cases, errors can be something as small as a wrong address or as big as an old bank account you no longer use but haven't yet closed.
Saving money is something you should be doing if you have any plans of applying for a loan in the future. Each week, set aside a portion of your income into a savings account that's meant to be used for your first home or car deposit. Regardless of what purchase you are planning to make, you should have a decent amount of savings, especially if you are planning to finance the purchase with a gift, grant, or tax refund. Nowadays, most lenders have a required genuine savings bylaw for people applying for a loan, particularly if you are asking for at least 90 percent of the property's value. The bylaw requires you to be able to provide at least three months worth of genuine savings. "Genuine" savings are those in a savings account, mutual fund account, or term deposit.
Pay down your debt and avoid taking in anymore, at least until you've been approved for your loan. You don't necessarily have to have a zero balance on all your credit cards and mortgages to be approved for a loan. But the less debt you owe to lenders, the less risky you seem as a client. On the other hand, if you have a mountain of debt underneath you, lenders will perceive you as high risk. In the event that you file for bankruptcy, there will be a long line of lenders that will be asking for their money back and that is what banks and private institutions are trying to avoid. Lenders evaluate your debt-to-income ratio when determining your creditworthiness. The higher the debt ratio is, the more likely your lender will deny your application or offer you higher interest rates or lower loan amounts.
Lender borrower relationship plays an important role in the long haul, especially if you are looking to sign up for a long-term contract, such as a 30-year home mortgage. Research the market to find a lender that's the best fit for your financial situation. In some cases, even if you don't have the best credit score, a good lender can still qualify you for a loan without raising your rates up. Fortunately, it's easy to aggregate this data in today's digital world. Online lending networks can help you shop from a wide range of lenders in just a few clicks of the mouse button.
Being prepared is one of the hallmarks of creditworthy people. It shows the lender that you have your life straightened out or you at least know what you're doing. If you arrive late, lack the necessary documents to apply for a loan, or don't know what questions to ask, it raises some red flags about your ability to organize your finances and repay the loan. If you are applying for a business loan, for example, make sure you have a business plan when you meet with lenders. They will especially be interested in your customer acquisition plan as this will determine your business' profitability and, therefore, your ability to repay the debt.
Follow the five steps above and you'll get approved for a low-interest loan in no time.