An unsecured personal loan can help you pass through a rough patch. But with stringent lending criteria, how does one manage to qualify for personal loans? Here are some tips to help you increase your chances of approval for an unsecured personal loan. ⭐Personal Finance ⭐Money Management ⭐Unsecured Personal Loans
COVID-19 corroborates the fact that emergencies are unprecedented. We’re fighting both, the health as well as economic consequences of this catastrophe. While we struggle to keep up with our day-to-day expenses, we can’t bank upon our savings to pull us out of an emergency. If you’ve been struck by an urgent expense, an unsecured personal loan may come in handy.
An unsecured personal loan can help you spread the repayments across a certain period, easing your financial burden. Additionally, unsecured personal loans don’t require you to secure collateral against the loan. However, to secure competitive offers on this form of credit, you’ll need to provide proof of stable income as well as decent credit history.
Here are some things to consider that could help you qualify for an unsecured personal loan.
Here’s how to qualify for an unsecured personal loan
Ever since the onset of the pandemic, lenders, and borrowers, have been suffering from a credit crunch. With restricted criteria, lenders have established that they will not lend money to just anyone. Especially for unsecured personal loans, where lenders can’t recoup their losses through collateral, they seek someone who will be able to repay the loan in full. Below are some factors based on which lenders take their decision. Working on these may improve your chances of qualifying for an unsecured personal loan:
- Check your credit score: Your credit score plays a crucial role in the success of your loan application. A good credit score proves that you’ve demonstrated responsible credit behavior in the past. While there’s no discrete value based on which lenders take their call, they prefer applicants with good or excellent credit scores. Your transactions get recorded on your credit report. Making timely repayments will help in boosting your credit score. A repayment failure, on the other hand, can be detrimental to your credit score. So, it is imperative for you to take measures to improve your credit score to increase the likelihood of your approval.
- Analyze your credit report: A credit report offers a more comprehensive scenario of your financial standing. While a credit score determines your creditworthiness, the credit report gives you a detailed idea of your financial past. Credit Reference Agencies like Equifax, TransUnion, and Experian provide free annual credit reports to users. Regular analysis of your credit report will help track your progress as well as inconsistencies. Moreover, discrepancies in credit reports are common. So, scrutinizing your report regularly will help you get these errors rectified.
- Pay your bills in full and on time: As mentioned earlier, all your transactions, including bill payments, are recorded on your credit report. These payments directly contribute to your credit score. You can make these contributions worthwhile by repaying all your bills in full and on time. If your credit score isn’t where you want it to be, taking these measures can aid you in bringing it up. Work on improving your credit score before you start applying for unsecured personal loans. Even if can qualify for an unsecured personal loan with your score, continue improving it to get competitive interest rate offers.
- Repay some of your debt: One other thing lenders tend to focus on is your debt to income (DTI) ratio. To calculate your DTI, you must know your gross monthly income as well as total monthly debt payments. It is a ratio of your monthly earnings and monthly debt repayments. Ideally, your DTI should be below 43%. The lower your DTI better will be your chances of qualifying for an unsecured personal loan. Paying off some of your debt can help reduce your DTI. You can start by paying off smaller debts and work your way into larger ones. As you continue making timely repayments, you will witness gradual improvements in your credit score.
- Provide proof of stable income: While applying for an unsecured personal loan, don’t be just laser-focused on your credit score and DTI. Remember that lenders need to see a holistic picture of your finances before giving out money. They’ll also assess your application on factors such as your monthly income and employment history. Since unsecured personal loans don’t involve collateral, lenders generally want to lend money to people who can afford to repay. With proof of stable income and decent employment history, you’re convincing the lender of your affordability.
- Shop around for competitive loan offers: When you feel that you have everything it takes to qualify for an unsecured personal loan, why settle for the very first offer? The lending market is competitive and you can leverage this opportunity by shopping for the best interest rates. Rate shopping can snag you some of the best rates available for your profile. But, don’t just compare interest rates, compare the overall cost of your loan – the APR. APR or Annual Percentage Rate is the all-inclusive cost of borrowing the loan. It includes the interest rate, closing costs, loan origination fee, and other overhead charges on borrowing. If you’re looking for a one-stop-shop to find your ideal loan, look no further because LoanTube is the answer. Visit us for a seamless Real Rate loan comparison experience.
- Get a guarantor to co-sign the loan with you: You may need an unsecured personal loan to cater to an immediate need. In such a case it isn’t practical to wait for your credit score to improve. If you happen to be in such a situation, a guarantor could help. Getting a guarantor with a stellar credit history to co-sign the loan can increase the chances of approval. This guarantor may be a family member or a close friend, willing to partake in the loan’s obligations with you. But tread cautiously because a failure in repayment can cost the guarantor a hefty sum.
Your checklist for an unsecured personal loan application
A personal loan can help you solve a variety of purposes. From a home improvement project to a new car, you can finance almost anything with an unsecured personal loan. But is it the ideal option for you? Here are some pointers to consider before opting for an unsecured personal loan:
How much will I have to repay?
Crunch the numbers to find out what your final repayment amount will be. Take all overhead costs into consideration to calculate this number. Additionally, work out the amount of money you’ll have to repay each month. Knowing this will help you incorporate the cost in your monthly budget, saving you the headache and money.
What will be the tenure of my unsecured personal loan?
The length of the loan term depends on how much you’re planning to borrow. Usually, smaller loan amounts can be covered up over a shorter loan term. A longer-term for a smaller loan amount may reduce your monthly payments. However, the longer the term, the more you end up paying towards interest. So decide on a loan term taking these factors into account.
What additional charges will I have to pay?
Your loan agreement will contain every additional charge associated with your loan. Some lenders may charge a closing fee, a loan origination fee, or an arrangement fee. These charges, coupled with the actual interest rate, can drastically affect the overall cost of the loan.
Will the lender charge me extra for a premature settlement?
It is imperative to check if your lender charges extra for early repayment of the loan. Some lenders allow a premature settlement, but charge you a hefty amount. You can want to settle the loan early, but it costs too much, is it even worth it? Weigh the pros and cons of repaying early before taking a call.
Is my credit report looking good?
When you’re planning to apply for an unsecured personal loan, your credit score may take center stage. But your credit report plays a crucial part in determining the lender’s decision. Discrepancies in your credit report can deteriorate your credit score. However, if your get these errors rectified, your credit score will gradually improve, boosting your chances of getting approved for an unsecured personal loan.