How to Increase Your Chances of Getting Approved for a Personal Loan

Applying for a personal loan? Discover what you need to do before you apply to make sure you get approved.

If you need quick access to large sums of money, getting a personal loan is probably your best option.

But all too often I speak with people who are anxious about applying for a personal loan because they don't know if they'll get approved.

Fortunately, there are things you can do to effectively increase your chances of getting approved for the loan that you need.

There are so many different reasons why people seek personal loan options.

If you're trying to consolidate your debt, a personal loan can help you accomplish that.

Or maybe you're embarking on a home improvement project and need some cash to fund it.

Personal loans can also be used for big purchases, like home furnishings and appliances.

You can use a personal loan to pay for medical bills or special events like a vacation or a wedding.

Taking out a loan and making on-time payments can also help you build your personal credit.

Regardless of your reason for needing the money, there is a loan out there that will suit you.

Even if you don't need a loan right this minute, you should still take these steps to improve your chances of getting approved for a personal loan when you need one in the future.

Outcomes of Personal Loan Applications

Know Your Credit Score

Learning your credit score needs to be your first step

What's your credit score?

You would be surprised how many people can't answer that question.

This factor plays such an important role in your financial life.

The reason why people don't know their credit score is simply because they just don't check it as often as they should.

Furthermore, roughly 30% of people surveyed admitted they don't know what their credit score is.

But from what I've seen in the 20 years I've worked helping people get access to credit, I'm willing to bet that number is even higher.

That's because credit scores can fluctuate.

Since such a large group of people haven't checked their credit score in the last six months, or even longer, there is a good chance that the score has changed since they last looked.

So even if you think you know your credit score, it's best to check it again before you apply for a personal loan.

You also need to realize what factors impact your credit score.

An alarming amount of people are unaware of what exactly can help or hurt their score.

For example, roughly 40% of Americans believe that their marital status and age have an impact on their score—this is simply not true.

In contrast, only one out of five people know that their credit score has an effect on the interest rates that get tied to their loans.

So it's safe to say that figuring out your credit score should be the first thing you do when you're considering borrowing money.

If you've got a high score, you probably have a good chance of getting approved.

Types of Personal Loans

Determine what type of loan you need based on your situation

There are different types of loan options depending on what you need the money for.

As I briefly explained earlier, there are lots of reasons why people take out loans.

I want to take that discussion one step further.

These are the most common reasons why people apply for a loan.

Top Reason to Take Out a Personal Loan

Let's say that you have multiple high-interest debts and you want to consolidate them all into a single, more manageable one.

There are loans specifically designed for refinancing your credit card debt.

If you want to make improvements to your home, you approach your bank or lender for a home-improvement loan.

The point is, certain types of loans are used for specific instances.

So make sure you figure out the type of loan you need before you apply.

This statement still holds true even if you're applying for a bad credit loan.

Knowing the right loan to apply for will improve your chances of qualifying and getting approved.

Provide Proof of Stable Income

A steady job shows the lender you can repay your debt

If you're out of a job right now, it may be the reason why you're considering a loan.

But with that said, it won't be as easy for you to get approved if you can't show proof of income.

Lenders won't give you money without knowing how they will get paid back.

So at the minimum, you should be able to provide them with pay stubs and tax documents like W-2s and 1099 forms for the last two years.

This will show the lender that you're receiving a steady paycheck.

It's less risky for them to lend you money if you have a regular income to repay it with.

If you don't need a loan right now, but you know that you'll need one in the future, you need to take this into consideration when you're making career moves.

Jumping to a new job every six months won't help your cause.

Even if you have a job right now, the lender may think that you could leave or get fired at any time if your employment history is unstable.

Apply for the Right Amount

Only apply for the amount that you need

It may seem like an obvious statement, but this is a common mistake that I see all of the time.

Here's a hypothetical example to show you what I mean.

Let's say someone needs a loan for $5,000.

But they figure, as long as they're applying, might as well ask for $10,000.

They assume that they'll be able to use the extra funds for something else.

Or they want to apply for more, so if they don't get approved, they'll try again and ask for less.

This is the absolute wrong mentality to have when you're applying for a loan.

Do your research before you show up and don't ask for an unreasonable amount of money.

You've got to realize how lenders think.

The smaller the loan, the less risky it is.

There is a greater chance that a borrower will pay back a small loan, so it increases the chances of getting approved.

Applying for a loan that's too large could backfire.

It can be more challenging for you to pay it back, or you might get stuck with extra interest charges that you'll be forced to pay even if you utilized only a portion of the big loan.

Plus, if you can't make these payments or default on the loan, it's going to hurt your chances of getting approved for additional loans in the future.

Look For Reputable Lenders

Only consider applying with lenders that are legitimate

If you approach a local bank, you don't really need to worry about their reputation.

You never want to become the victim of some kind of scam from a sketchy "lender."

It's an age-old saying that I'm sure you've heard before.

If something sounds too good to be true, it probably is.

So if you find some online lender that promises to approve you for large sums of money that are unrealistic based on your financial situation, it could be an advance loan fee scam.

Always make sure that the lender is licensed and know where the best places are to get a personal loan.

Check to see if they have had any lawsuits in the past or ones that are currently pending.

Do your due diligence and check for online reviews and reports.

Check their Better Business Bureau rating as well.

Don't Apply For Multiple Loans Simultaneously

Apply for just one loan at a time

If you apply for a bunch of different loans at once, it must improve your chances of getting approved, right? Wrong.

I strongly advise against this strategy.

Lenders will do some investigating before they approve you.

If they find out that you've applied for multiple loans at the same time, it gives them the wrong impression.

What would you need all of this money for?

Is there something that you're hiding or not telling them?

Multiple applications may be enough of a red flag for lenders to deny you.

But if you find the right loan, and apply for the proper amount with a reputable lender, one application will be enough to get the job done.

Find a Co-signer

A co-signer with great credit can help your chances

If you've got no credit or bad credit, you probably don't have the best chance of getting approved for a personal loan.

But if you know someone with good credit, you can ask them to co-sign your loan.

When you apply for this type of loan, the lender will use the co-signer's credit score to determine your loan terms.

Not only will this increase your chances of getting approved, but if your co-signer has an excellent credit score, then you'll benefit from lower interest rates as well.

Let me show you a specific example to emphasize how beneficial this can be.

Just take a look at the average interest rate for an auto loan based on credit scores.

But you have to realize the potential repercussions of this type of loan.

Your co-signer becomes equally responsible for repayment of the funds.

Failure to repay the loan will hurt not only your credit score, but theirs as well.

Co-signer Negative Experiences Due to Primary Signer Delinquency

Provide Accurate Information

Never lie on your loan application

You don't want to lie or withhold any information on your loan application.

This is another thing that will be a huge red flag for lenders.

So you've got to make sure that you double and triple check everything before you submit the application.

For example, let's say that there is an error on your loan application.

Even if it was an honest mistake, it still gives a bad impression of you to the lender.

If you can overlook something so simple, they may not think that you're trustworthy to lend potentially tens of thousands of dollars to.

Telling a lie on your application is even worse.

Don't think that a lender will just look at everything you provide them with and assume that it's gospel truth.

As I said earlier, they'll do some investigating of their own.

If you lie about something like your income or outstanding balances, they could deny your loan if they find out.

You have a much better chance of getting approved if you are completely transparent, even if you think that your responses appear unfavorable.

Pay Off Outstanding Balances

Eliminate your high-interest credit card debt

This may seem unreasonable for some of you.

I know what you're thinking.

How can you possibly pay off balances if you need a loan?

Obviously, it depends on how much debt you have.

But do whatever you can to at least pay down some of these balances.

Obviously, I'm not expecting you to pay off your mortgage or student loans before you apply for a personal loan. That's going to be unrealistic.

If you're making your car payments on time, then you're probably OK for that category as well.

But if you're just paying the minimum amount of your credit card bill each month, it's not helping you out.

Do your best to pay it off completely, or at least pay it down.

For those of you with lots of debt, lenders may be less willing to become a part of that equation. If they know that you owe money to other people, how can they be sure that they'll get paid back when you have other obligations?

Plus, paying down your debt improves your credit score.

As you know based on everything that we've discussed earlier, improving your credit score can also help improve your chances of getting approved.

Here's something else to consider.

Use your new personal loan to pay off these balances.

Consider applying for a debt consolidation loan to do so.

Timing is everything

Know when you're ready to apply

The timing of your personal loan application is critical.

To get the best possible chance of getting approved, don't apply until you've done all of the things that I've outlined in this guide.

Know your credit score and do everything possible to try and improve it.

Figure out what type of loan you need, which will be largely based on what you're using the money for.

How much do you really need? Apply for only that amount.

Find a way to provide proof of a stable job and pay off as much existing debt as possible before consulting with a lender.

Always provide your lender with accurate information and never lie on an application.

If you've got bad credit, you may want to consider finding a co-signer to help you get approved.

Always use a reputable lender and only apply for one loan at a time.

Do all of these things and I can almost guarantee that your personal loan application will get approved without a hitch!

Have you experienced getting denied for a loan in the past?

Were you able to succeed in getting approved?

Feel free to ask questions or share your personal loan tips in the comments section below.

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