5 Steps to Get Approved for a Personal Loan
A personal loan can be the ideal way to get an influx of cash for home renovations, a new vehicle, some seed money for a new business idea, consolidate debt, or literally anything else you need money for, but the approval process can be nerve-wracking. Even if you think you look perfect on paper, applying for the wrong loan can leave you with a higher interest rate than you deserve, or, in the worst-case scenario, a rejection and a mark on your credit rating that will make it difficult for you to get approved in the future.
So, how can you put yourself in the best position to get approved for not just any personal loan, but the right personal loan? Follow the 5 steps below.
Get Approved for a Personal Loan Step 1: Check Your Credit Score
If you haven’t already, now is the time to use a free or paid service to check your credit score and see what kind of standing you’re in. There are plenty of credit score services available online, so simply do a search and choose one you like the look of if you aren’t already signed up with one of these services.
Once you’ve got it, how does it look? Check if there are any errors you can put right that will help you increase your score before you move ahead. In general, the higher the credit score the better your interest rate will be and you will be more likely to be approved for a large loan amount. The one exception to this rule is if you have very little credit history – if you’ve never had a credit card before or any other form of credit, companies aren’t going to be as willing to take a chance on you, even if your score looks very good.
Get Approved for a Personal Loan Step 2: Secured or Unsecured?
Firstly, decide whether you want a secured personal loan or an unsecured personal loan. The majority of personal loans are unsecured, which means the lender gives you the money and expects you to meet the monthly payments. If you don’t, they can take legal action against you, but – in general – they can’t take your possessions.
A secured loan is one that is “secured” against something you own; in most cases your home or your vehicle. This gives the lender the extra security that, should you default on your payments for any reason, they can take ownership of your possessions and sell them to get back the money you owe.
In general, a secured loan is only necessary for loans of over $10,000.
Get Approved for a Personal Loan Step 3: Be Self-Aware
This is the step most people omit, and so aren’t properly prepared for choosing which loan to apply to. It’s time to look at yourself and your circumstances critically and think about whether or not you look like a good bet on paper. Remember that your lender is both selling you a financial product (which you pay for in interest) and trusting that you won’t default on your payments. Sometimes, a negative turn in your life may make defaulting unavoidable, but lenders understand that this is a very small percentage of their customers and so when they look at your details they want to see that you can easily afford the repayments.
Here are some points you should consider:
- What is your credit score? (Do you have good, okay, or bad credit?)
- How long is your credit history? (Is it under 5 years?)
- Have you missed payments, defaulted, or have other marks against you?
- How much money do you make?
- Are you employed or self-employed? Full-time or part-time? If self-employed, how long have you been making a steady income for – and can you prove it?
- If securing the loan, how much is the property worth?
- How much “extra” income do you have leftover once you’ve paid all your essential bills? (This is a very important factor, as much of whether or not you get approved is dependent on the perceived affordability of the loan.)
- If you have little history, do you have anyone who could be suitable as a guarantor?
- If this is a joint loan, repeat these questions for your partner.
All considered, do you look like a good prospect for one of the best interest rates or do you think you need to look at loans who accept those with average or even “bad” credit scores?
Get Approved for a Personal Loan Step 4: Compare Loans
Now you’ve got an idea of what you will have a good chance of getting approved for, it’s time to compare lenders and loans. The best way to do this is to use our comparison service, as this will help you find the loans that are best suited for you, so you can make an educated decision about which lender and loan are right for you.
- What’s the proposed interest rate? (7% or less is very good, over 10% is high)
- What would the monthly payments be if approved for the advertised rate?
- What’s the likelihood of getting approved?
- Do you meet all their requirements?
- Have you heard of the lender before? (If not, do some research about who they are and check they are a credible lender.)
There’s nothing wrong with applying for a loan that offers a great rate – but if you are unlikely to get it or there is a high chance that you will be rejected, you are better off looking for a loan that is more likely to accept you. A service like ours will help you make the best choice.
Get Approved for a Personal Loan Step 5: Prepare and Apply
Now it’s time to actually apply! Take your time with this process and don’t become flustered and rush through. Most online applications will save your progress so you can continue later, and if you are required to fill in the application in one sitting, they’ll tell you what you need to complete it before you start.
To apply online for a personal loan, you’ll need to know your monthly budget figures, your salary and how often you are paid, any information on bonuses you get, and any income from other sources. At this stage, you likely won’t need to attach any copies of your payslips, but they may ask you for them before making a decision.
This step can be anxiety-inducing, especially if you really need the money, but keep calm and read each section carefully. If you’ve done your due diligence and used our comparison tool, you won’t be out of your depth.
Make sure you read through the terms thoroughly before fully accepting their offer. In many cases, they’ll approve you automatically at the end of the application process, reject you, or ask you to send them more information before they make a decision.
Ready to start the process? Click here to start comparing personal loans.