7 ways to increase the chance of your next loan being approved
Applying for a loan can be a scary experience, especially knowing that a failed application will only make your next one more difficult.
The good news for borrowers is that banks and lending institutions tend to be quite transparent about the kind of applicants they're looking for. So, to work out how to make your next application a successful one, you can analyze this information and apply it to your own finances.
Today, we're going to break this information down into 7 actionable steps that will make your next loan more likely to be approved.
#1 - Start preparing as early as you can
The best thing you can do when trying to get a loan is to try and prepare as far in advance as you can.
The following tips will help you get a loan, but the earlier you employ them, the more effective they will be for you.
If you know that you will need a loan for something in the future, then it is time to get prepared. You can never start too early.
#2 - Build your credit score
Checking your credit score is easier than it ever has been.
Back in the day, the only way to get an idea of what your credit score looked like was to apply and get denied a loan. Now, some companies will let you check your credit score online for free.
Once you know what your credit score is, you can start to build it. Credit scores are particularly important when applying for personal loans.
Easy ways to build your credit score include:
- Getting a credit card and paying it off at the end of every month
- Start paying off any other debts you have
- Taking out a contract on something like a phone or car, and making your payments on time
Doing the tasks above will show lenders that you are responsible for your money. While bigger lenders may judge you on your current credit score, smaller lenders are likely to take visible improvements into account.
#3 - Look for a lender who specializes in the type of loan you need
A specialized lender is more likely to say yes to your application. They can do this as they will be able to spend more time talking to you and getting to understand your exact situation.
The one downside of going to a more lenient lender is that you may have to pay higher interest rates. Although, a loan with high interest rates is better than no loan at all.
This is particularly useful advice if you are trying to apply for a business loan. Especially if you are applying for a loan to open a business in an area that is heavily interested in bringing in new businesses.
Local small business associations may be able to point you in the right direction for lenders who might say yes to you and your business.
#4 - Start with a smaller loan
This tip is similar to tip #2 - you want to establish a record of you being a reliable person with money. Therefore, if you know that you are going to need a big loan in the near future, you may want to consider taking out a smaller loan now. Then pay it back completely before you apply for the bigger loan.
It is also worth noting that you shouldn't apply for the biggest loan possible at any point. Instead, you should only apply for the amount of money you actually need. Even though it can be tempting to apply for more money, you will end up losing money through interest in the end.
#5 - If you're getting a joint loan, pick the person wisely
Sometimes we find ourselves at a point in life where we are applying for a joint loan with someone else. While this can seem like a good idea, there are some drawbacks that you should be aware of.
If your loan gets denied because the other applicant has bad credit history then your credit history will also take the hit. Therefore, when you agree to take out a loan with someone, you should be aware of their basic credit history, if not their credit score.
If they cannot provide you with this, then you may want to consider choosing someone else to take out a loan with or taking the loan out on your own.
#6 - Only apply for loans you think you will get approved for
As we have briefly touched upon, getting rejected by a loan application will damage your overall credit score and your likelihood of getting your next loan approved.
For this reason, you should consider which loans you apply for very carefully.
You should make the most of loans that offer you a free approval check. These companies will allow you to check whether you will be approved for the loan, without it affecting your credit score.
Otherwise, you should be selective about the loans that you apply for. Take the time to read the lender's requirements for their borrowers. If you do not meet these requirements, you should not apply for the loan until you do.
Recklessly applying for loans will only make it harder to get your next application approved.
#7 - Get feedback from anyone who rejects you
Our final piece of advice is to ask the lenders who reject your applications for feedback.
Going back into the process with a different lender blind - not knowing why you were rejected last time - is a recipe for disaster.
When you get feedback from these places, make a note of it. If you do not know how to fix the problems then you can get in touch with a financial advisor, who will be happy to help you.
With the help of the tips above, you will have an easier time getting your loans approved. The key areas borrowers should be focusing on are improving their credit scores and applying for loans they think they will get approved for.