You may have heard the phrase “cash is king”. For many people, cash is not an option for big-ticket purchases. If you are one of those people, you may be considering getting a loan. Whether you are seeking a car loan, personal loan, or mortgage, you must meet certain criteria. There are a few tips to improve your chances of approval.
Monitor Your Credit
Most loans have a minimum credit score requirement. It is smart to routinely perform a free online credit check. You can inspect for errors, review your payment history, and examine open accounts. If your score isn’t where it needs to be, you can work to raise it before applying for your loan.
Raising your credit score can be a bit confusing. Paying off debt, closing accounts, or applying for a higher line of credit can backfire if it isn’t done correctly. While you can research options online, it’s a great idea to consult with a lender for advice.
Keep Your Loan Low
Before you request a loan, carefully determine how much you need. You may be tempted to borrow a little extra cash or finance a more expensive item. The monthly payments might not be much more, right?
There are a few reasons to avoid a larger loan than necessary. The more you apply for, the more difficult it is to get approved. Multiple applications may result in several hard credit pulls that can decrease your credit score. You may end up paying substantially more over the life of the loan due to interest, and larger open accounts can hurt your chances of future loan approvals.
Compare Multiple Lenders
Not all lenders are the same, so you should compare a few. You can ask about or research minimum loan requirements before filling out an application. Pay attention to the conditions such as credit score, income, and job history.
If you find multiple lenders that you may qualify with, consider talking with each one. They may be able to do a soft credit check for loan pre-approval and discuss loan terms. You should remain wary of loans with simple applications but high interest rates.
Improve Debt to Income Ratio
One of the parameters used in loan approvals is your debt to income ratio. Your lender will compare how much money you are bringing in per month to how much you already owe. Debt includes everything from your credit card balance to student loans and mortgages.
To improve this ratio, you have two options. You can either increase your income or decrease your debt. Caution is necessary if you want to increase your income by changing careers.
Maintain Stable Employment
Lenders will look at your employment history before granting a loan. The exact requirements will vary by loan type and amount. You may only need to show proof of steady employment in any job.
Stricter loan processes won’t just require any employment. Lenders may request stable employment in the same career field for up to two years. If you are considering switching careers, you might need to wait until your loan is fulfilled.
Include a Co-signer
You may find that you can’t qualify for your own loan in a timely manner. If that happens, you still have a chance of getting funds. Most loans will allow a co-signer.
You can benefit from their credit history and additional income. Finding a co-signer may be difficult, though. While you benefit from the loan, your co-signer takes on risks if you default.
Remember that when it comes to finances, it’s wise to think ahead. Whether you need a loan now or in the future, these tips can help you get approved.