Applying for a loan can be deceptively complex. Whether it’s a long term personal loan, for example car finance, or a short term payday loan, the last thing you need is for your application to be turned down. Here’s how you can avoid that happening.
Sort out your credit score
Your credit score is one of the major factors lenders consider when they’re deliberating over saying yes or no to your loan.
By having a solid credit score, you vastly increase your chances of obtaining a loan when you need it most. Here’s how to work on making your credit as good as possible.
- Check your credit report. Apparently, as many as 1 in 5 credit scores contain mistakes. If this error counts against you, it could be the factor that causes a lender to say no to your application. Correcting issues on a credit score can take a while, so make sure you do this at least 4 weeks before applying for a loan.
- Keep your debt managed by paying off debts and not relying on credit cards. A lender examines your credit utilization ratio, which is how much credit you have available in total based on income, versus how much you’re using. Keeping the percentage on the lower end makes you a safer bet.
- Don’t make let payments. Late payments show up on your credit record, and even one or two can count against you. Make sure you’re making all your payments on time, even if you have to set up direct debits to do so.
- Don’t keep applying for loans. Whenever you apply for a loan or credit card, an inquiry marker is placed on your credit score, which remains for two years. This means when applying for truck loans, you should be selective One or two aren’t going to make a difference to a lender, but a cluster of loan applications, especially failed applications, are going to be a significant mark against you when applying for new credit.
Have a steady, regular source of income
Lenders heavily weigh your income against the money you’re asking to borrow. If you’re employed, with a regular income coming it, it becomes much simpler for a lender to assess whether you’re capable of making your repayments.
This means there’s several things that can count against you here. If you’ve recently changed job, or your income has drastically changed in the last couple of months, it can be hard to gauge whether you can repay your loan.
Also, if you’re paid irregularly, or you regularly take payments in cash, so it’s hard to track your income through bank accounts, lenders might shy away.
The best way to deal with this is simply to attempt to have steady, consistent income over the months before you apply for a loan.
Don’t ask for more than you need
More money borrowed is a higher level of risk. They also mean larger repayments, and hence require a larger income to cover.
Work out how much money you need, and ask for that figure. It will make getting your loan, and paying it back, so much simpler.
Find the right lender
Lenders tend to specialise. Some lenders will only take on clients who are ironclad bets, with absolutely zero risk. Others work with people who might have bad credit.
Remember, when you apply for a loan, it makes a mark on your credit score for two years. This means when applying for loans, you should be selective. Only apply to the lender who’s most likely to say yes.
You can maximise your chances of approval by preparing in advance. Most lenders will have their expectations and approval process available and highly visible to you. If in doubt, you should call and ask what is required. Every lender will be happy to discuss your needs, and work with you to increase your chances of getting a loan with them.
Consider co-signing
If your credit is bad, or you don’t have the visible income necessary for a loan, you may still be able to get it signed off by co-signing with someone who has a higher income or better credit score.
Most lenders will allow co-signing on a loan, and can even be preferable because it spreads the risk across multiple people, decreasing the chances of repayments being made.
If you go this route, consider what you’re asking the co-signer. They’re taking on the risk alongside you, and it’s their life and credit score on the line if you can’t make payments, so only take on loans you know you can repay.
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