5 tips on how to get approved for a personal loan fast

Whether you need to fund a vacation, wedding, or home repair, a personal loan can help you finance your needs. So, before you apply for one, make sure you come ready and prepared. That said, understanding how to get approved for a personal loan can improve your chances of qualifying for the funds you need.

While requirements, like credit scores and income, vary per lender, taking some steps can help you confidently get the loan you need. Below, we outline a few things that can lift your chances of loan approval. 

1. Improve your credit score

Having a good credit score is an important factor when applying for a personal loan. Remember, lenders prefer borrowers with good credit because it shows their ability to manage and repay debts. While lenders may use different models, the two commonly used credit scoring models are FICO and VantageScore.

For FICO scores, good credit scores range between 670 and 739 while anything higher than 800 is exceptional. But for VantageScore, good credit scores range from 661 to 780 while excellent credit starts from 781. Each lender has its own criteria. But generally, scores in the good to excellent ranges may help you qualify better. 

To maintain a good credit score, make on-time payments, reduce your credit utilization, and avoid making multiple inquiries at once.

2. Prove you can pay back the loan

Other than your credit score, lenders also check if you can afford to pay back your loan. Considering this, proving your ability to meet your monthly payments is important when applying for a personal loan. 

Income and employment

One way to prove you can afford the loan is to have steady employment and a source of income. This may give your loan application a helping hand since it goes to show lenders you can cover your monthly repayments. Then, if you’re self-employed, you may need to provide additional documentation. This can include your tax returns to show you have a reliable source of income. 

Low DTI ratio

Another way to show you can pay back your loan is to have a low debt-to-income ratio (DTI). Lenders calculate your DTI ratio by dividing your monthly bills by your monthly income. Meaning the lower your ratio, the more disposable income you have. So, aim for a lower ratio to show you can handle your loan repayments.

In other cases, lenders have minimum income or DTI ratio requirements. Before applying, talk with lenders to check if you fit their minimum requirements. This way, you can filter your choices.  

3. Borrow only what you need

Even if it may be tempting to borrow more, only apply for what you need. Lenders assess your loan amount based on your income and overall financial health. So, borrowing less can help increase your chances of loan approval. 

Borrowing a smaller amount also reduces the total interest you pay over the life of your loan. By keeping a small loan amount, you can lower your monthly payments and save on total interest. 

Say you need an extra $10,000 to fund your wedding. Then, you find a personal loan with a 36-month loan term and a 13% interest rate. If you take out a $10,000 loan, you only pay around $2,129.82 in overall interest. But if you push your loan to $15,000, your overall interest charges reach $3,194.73. 

Find a lender that meets your financial needs and situation

It’s also important to assess where to get your personal loan. Different types of lenders have varying offers and requirements. So, comparing your options can help you narrow down which may approve your loan. 

Banks

More often than not, traditional banks provide competitive interest rates. Though the downside is they tend to have stricter credit requirements compared to other lenders. This means you generally need good to excellent credit scores to qualify for a personal loan from a bank.

But if you have an existing account with a bank, you may use this to your advantage. Let’s say you have a savings account with one bank. When you have an established relationship with the bank, they may consider your past transactions to assess your loan. So, applying for a personal loan with the same bank may help you score an easier application process or a discounted interest rate. 

Credit unions

Since credit unions are not-for-profits, they often have lower interest rates and minimal fees. Usually, they also provide more flexible credit requirements than your traditional banks. So, this improves your chances of getting approved for a personal loan. Besides that, if you have low credit scores, credit unions can be a good option. 

However, you typically need to be a member to apply for a loan in credit unions. This means you should meet their membership criteria first before you qualify for a loan.

Online lenders

Thanks to the internet, you can apply from anywhere, making personal loans easier to access. Online lenders tend to offer more lenient credit requirements as opposed to banks. So, you may be able to secure a personal loan with less-than-perfect credit. Though the tradeoff may include paying higher interest rates and fees. 

Settling on the wrong loan can only add to your troubles and cause strain on your budget. But if you pay close attention to comparing lenders, you can find the right one for you and avoid overpaying on your loan.

4. Consider your options

To increase your chances of approval, it’s also worth it to check your other options if you struggle with your personal loan application.

Co-signer

If you have a limited credit history or poor credit score, one of your options is to get a co-signer. A co-signer is someone legally responsible to pay back your debt in case you can’t meet your monthly payments anymore.

Having a co-signer can be advantageous especially if you don’t meet the lenders’ credit requirements yet. When you have a co-signer, lenders assess both of your financial profiles. So, your co-signer should ideally have strong credit. 

This way, you strengthen your application and potentially qualify for better rates and terms. Sometimes, it may increase your chances of getting approved for a loan that may have been otherwise hard to reach.

Secured vs unsecured loans

Before applying for a personal loan, also assess whether to get a secured or unsecured loan. Choosing between the two depends on the risk you’re willing to take. 

A secured personal loan requires collateral, like your savings account, certificate of deposit (CD), etc. Your asset reduces the risk lenders take. This, in turn, may help you get lower interest rates and improve your chances of getting approved for a loan. But remember, you risk losing your asset if you default on your payments. 

Alternatively, an unsecured personal loan doesn’t require any collateral. Though to offset the risk, lenders typically put high interest rates on unsecured personal loans. 

So, if you want to qualify for lower rates and are comfortable putting up your asset as collateral, secured personal loans may help. On the flip side, if you don’t own assets or don’t want to risk them, an unsecured loan may be more fitting.

Personal loan requirements

Lenders typically request some documents to verify your information when you apply for a personal loan. While it varies per lender, you usually need to prove your: 

• Personal identification: One of the first things lenders check is your identity. So, you may be required to show government-issued identification. This may include your driver’s license, birth certificate, certificate of citizenship, passport, or any other state-issued ID. At times, your lender may also need your Social Security number. 
• Address: Lenders also confirm your address when you take out a loan. For this, you may need to show documents that contain details of where you live, like a lease agreement or utility bills.
• Income: Lenders assess whether or not you can meet your monthly payment. So, depending on your employment status, you may need to provide documents – W-2s, pay stubs, bank statements, tax returns, etc.

Prequalification vs preapproval

Prequalification is a general estimate of your rates, so this may not be that accurate. And since lenders only do a soft credit check to prequalify you, it doesn’t lower your credit score. 

Preapproval shows what lenders may potentially offer you. Instead of doing a soft pull, lenders conduct a hard credit check when you get preapproved. While this may cause a slight dip in your credit score, it provides some level of certainty.

Beware though because some lenders may use these terms interchangeably. Whether you get a prequalified or preapproved offer, clarify it with your lender first. 

What to do if your personal loan is rejected

If your application gets denied, don’t lose hope. The first thing you should do is figure out the reason for rejection. Is your credit score too low, or does your income not meet the requirements? Is your loan amount too high? 

Whatever the reason is, clarify it with the lender. This way, you know what you need to work on to lift your chances of getting a loan in the future. Depending on what the lender tells you, here are some things you can do if your application is denied: 

• Thoroughly check your credit report for mistakes. Get your credit report from the major credit bureaus – Experian, Equifax, or TransUnion. If you find any errors, don’t hesitate to report them. 
• Make sure you’re up to date on all your debts. Since 35% of your credit score is made up of your payment history, timely payments can help improve your credit. 
• Get a lower loan. Consider a smaller loan if your income is low or you have poor credit. Lenders may be more willing to work with you if you have a smaller loan. 
• Pay off your outstanding debts. Remember, keeping a low DTI ratio shows lenders that you can comfortably repay your loan. If your DTI is quite high, try to pay off your old debts to decrease the ratio. 
• Consider a secured loan. If you’re willing to take the risk, you may apply for a secured loan instead. Through this, you may have more luck in getting approved for a personal loan. 
• Have a co-signer. Some lenders may accept lower credit if you apply with a co-signer. With this, you boost your chances of loan approval.

Conclusion

Your credit score, income, loan amount, and multiple options can make all the difference with your loan. So, insight into these factors can help you maximize your chances of getting your personal loan approved. Eventually, you can easily and confidently borrow the funds you need, save more, and improve your finance in the long run.

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