Three Secrets To Your Best Loan Approval
When you want funds to repair your home, pay off medical costs, or repair your automobile, you may be tempted to apply for a personal loan. The benefit of obtaining a personal loan is the ability to use the loan money for any purpose. In addition, a personal loan often has lower interest rates than a credit card.
Furthermore, personal loans typically close fast. When you apply for a home loan, for example, it might take several weeks from the moment you start the process to the time you close on your loan. With a personal loan, you might apply at the beginning of the week and receive your money by the end of the week.
But if you are going to get a personal loan, you might as well get the best interest rate available. This will help keep your monthly payments more manageable. Here are three steps to getting a decent deal on a personal loan.
1. Improve your credit score
Personal loans are rather risky from the standpoint of the lender. What’s the reason? They are not attached to a specific item that may be used as collateral.
If you sign a car loan, your lender is partially protected if you do not make your monthly payments on time. This is due to the fact that it has the authority to repossess your vehicle. A personal loan does not provide the same level of protection.
As a result, personal loan lenders place a high value on having excellent credit. The higher your credit score, the less risky you appear to be as a borrower.
Personal loan applicants with good credit will often be rewarded with cheaper borrowing rates. So, if you want to save money on your personal loan, do everything you can to improve your credit score.
How do you go about doing that? One method is to pay all of your payments on time. Another thing you may do is examine your credit report for mistakes. Correcting errors might help your score increase rapidly.
2. Apply when interest rates are lower in general
Personal loans are becoming more expensive as a result of the Federal Reserve’s rate increases. Even if you have decent credit, you may wind up paying more interest than you would like.
However, if you wait for borrowing rates to fall in general, you may be able to lock in a far better offer than what is available today. So, if you don’t have a sudden financial need, waiting may be a rational decision.
3. It’s not all about your credit scores
Credit scores certainly matter for personal loan approvals, but they aren’t the only thing lenders can consider. After all, your credit score and credit history are not the same thing.
Credit history refers to your overall track record of using credit and debt. That includes things like:
Payment history and how often you pay on time vs. paying late
Credit utilization and how much of a balance you typically carry on credit cards
How often you apply for new credit
Types of credit you’re using
How long you’ve been using credit
Additionally, lenders can look at your income and how much of it goes toward debt repayment each month or debt-to-income (DTI) ratio. The less money you have going to debt each month, the less risky you may appear to lenders.
Paying down a chunk of your existing debt can reduce your DTI, though whether that’s realistic may depend on how much cash you have. You could, however, use a windfall like your tax refund to wipe out some of your debt.
You can also focus on improving your credit history by disputing credit score errors. Furthermore, you can check your credit reports for free and if you spot an error, you can dispute it with the credit bureau that’s reporting the information. By law, credit bureaus have to remove or update inaccurate information when they find it, which could boost your score by a few points.
