Improve your personal loan application

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Whether you need money for home renovations, medical bills, or other personal expenses, a personal loan could be a helpful option. To qualify for a personal loan, you will generally need good to excellent credit, verifiable income, and a low debt-to-income ratio (DTI).

If you’re ready to take out a personal loan, here are four tips to improve your personal loan application:

  1. Check your credit report
  2. Don’t ask for the highest loan amount you can get
  3. Consider applying with a co-signer
  4. Find the right lender

1. Check your credit report

Your credit score is one of the main factors that lenders consider when deciding whether or not to approve you for a personal loan. You will generally need good to excellent credit to qualify – a good credit score is generally considered to be 700 or above.

Keep in mind: Your credit will also have an impact on the interest rates offered to you. In general, the higher your credit score, the better your rate will be.

For this reason, it’s a good idea to check your credit report before applying to see what state your credit is in. You can use a site like AnnualCreditReport.com to view your credit reports for free. If you find any errors, be sure to dispute them with the appropriate credit bureau online, in writing, or over the phone to potentially boost your credit score.

How can I establish my credit score? There are five factors that make up your credit score: payment history, credit usage, length of credit history, credit mix, and new credit. Here are some strategies that might help you improve some of these areas:
  • Pay all your bills on time to create a positive payment history
  • Pay off your credit card balances to reduce your credit usage.
  • Keep credit accounts open to continue increasing the length of your credit history.
  • Avoid taking out new loans when possible to keep difficult credit applications to a minimum.

Learn more: How to create credit quickly and efficiently

2. Don’t ask for the highest loan amount you can get

When you apply for a personal loan, the lender will measure the risk of lending to you. This includes determining whether you are reasonably able to afford an additional monthly payment on top of your current obligations.

If you try to borrow a large sum of money that would stretch your budget too much, lenders might consider you too much of a risk, which means they probably won’t approve your application.

Keep in mind: One of the common requirements to get approved for a personal loan is to have a low DTI ratio. Your DTI ratio is the amount you owe in monthly debt payments relative to your income. To qualify for a personal loan, your DTI ratio must not exceed 40% – although some lenders may require ratios lower than this.

To calculate your DTI:

  1. Add up your total monthly debt payments — including your housing payment (mortgage or rent) as well as any payments reported to credit bureaus (such as credit cards).
  2. Calculate your monthly gross income — this is your monthly net salary before taxes or deductions.
  3. Divide your total monthly payments by your gross monthly income, then multiply that number by 100 to get a percentage. This is your DTI ratio.

Before applying for a personal loan, be sure to determine how much you can afford to pay each month for the loan. This can help you determine a loan amount that will fit comfortably into your budget, which will likely make approval easier.

You can use our personal loan calculator below to estimate your monthly payment and overall loan cost with different loan amounts.

Enter your loan information to calculate how much you could pay

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monthly and a total of
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interest over the term of your loan. You will pay a total of
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over the term of the loan.

3. Consider applying with a co-signer

If you have less than perfect credit, applying to a creditworthy co-signer could help you get approved for a personal loan. Not all lenders allow co-signers on personal loans, but some do.

Point: Even if you don’t need a co-signer to qualify, having one could get you a better interest rate than you would get on your own.

A co-signer can be anyone with good credit — such as a parent, other relative, or trusted friend — who is willing to share the responsibility for the loan. But before someone co-signs a loan for you, it’s important that you both understand the risks involved, such as:

  • Responsibility for payment: If you don’t repay your loan, your co-signer will be on the hook.
  • Credit damage: Missing payments on your loan will cause damage to your credit as well as that of your co-signer.
  • Tight relationships : If you’re unable to manage your loan repayments and hurt your co-signer’s credit, you could end up straining your relationship with your co-signer.
Point: Before asking someone to co-sign a personal loan, be sure to have an open and honest conversation with them to make sure they understand these potential risks.

It’s also a good idea to create a plan with your co-signer detailing what you’ll do if you’re unable to make a payment on time.

Check: How to get a personal loan

4. Find the right lender

There are a wide variety of lenders that offer personal loans, including online lenders as well as traditional banks and credit unions.

Before applying, it’s important to shop around and compare your options with as many personal lenders as possible. This way, it will be easier for you to find an optimal loan for your situation with an advantageous interest rate.

In addition to interest rates, be sure to consider these other factors:
  • Loan amounts: Personal loans typically range from $600 to $100,000 or more, depending on the lender.
  • Repayment Terms : You will typically have one to seven years to repay a personal loan, depending on the lender. While choosing a longer term may result in a lower monthly payment, it’s generally best to choose the shortest term you can afford to keep your interest charges as low as possible. Many lenders also offer better rates to borrowers who opt for shorter terms.
  • Costs: Some lenders charge fees on personal loans, such as origination fees or late fees. These can increase the overall cost of your loan. Keep in mind that if you take out a loan with one of Credible’s partner lenders, you won’t have to worry about prepayment penalties.

If you’re ready to start looking for a personal loan, Credible can help: you can compare your pre-qualified rates from multiple lenders in two minutes. Note that this only requires light credit which will not affect your credit.

Ready to find your personal loan?
Credible makes it easy to find the loan that’s right for you.

  • Free to use, no hidden costs
  • A simple form, easy to fill out and your information is protected
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About the Author

Taylor Medina

Taylor Medine is a credible authority on personal finance. His work has been featured on Bankrate, Experian, The Balance, Business Insider, Credit Karma, and more. She is also the author of The 60-Minute Money Plan, a self-published primer on budgeting for people who hate budgeting.

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