Are you trying to get a personal loan but getting rejected time and again? Do not worry, you are not alone. Everyone wants to borrow money for emergencies, home repairs, or even school expenses. A personal loan comes in handy, but approval is not always certain. The good news is, there are some simple ways to improve your chances.
Today, we will introduce you to easy-to-follow guidelines that can get you approved for a personal loan. Just keep reading and doing as told, and you will be good to go!
1. Check Your Credit Score First
Before you venture out to get any type of loan, the first thing you need to do is check what your credit score is. This is a number that tells lenders how good you are at paying back money. If your credit score is poor, lenders will deny your application for a loan.
There are numerous websites on which you can see your credit score for free. Once you know your score, you will discover if it is the cause for which you are being rejected or not. You can even apply a personal loan EMI calculator online. It tells you about the monthly repayment amount that you will have to pay.
2. Improve or Build Your Credit Score
Your credit score is the initial thing that banks and lenders consider when you apply for a personal loan. It informs them whether you are good at paying back money on time. A credit score of 750 or higher is considered good. If you have a high credit score, even certain banks will approve a loan for you with a low interest rate. That is because those with high scores are less likely to waste money and miss payments.
If you have a low credit score, you can still obtain a loan, but the bank will charge you a higher interest rate. That is why you need to keep your credit score high. These are some easy ways of raising your credit score:
- Always pay your loan and credit card bills on time
- Do not use your full credit card limit—try to keep it low
- Do not apply for too many loans or credit cards in a short time
- Do not close your oldest credit card—it helps show your long credit history
- Try to keep a good mix of both secured loans (like car or home loans) and unsecured loans (like personal loans)
- Check your credit report often to make sure everything is correct and your score stays high
3. Check If You Can Afford the EMI
Banks like to give loans to people whose monthly loan payments are not more than 50–60% of their income. If your EMIs are too high, it becomes harder to get a new loan.
Before taking a loan, think about how much EMI you can really afford. Do not forget to include other things like monthly bills, insurance, old loan EMIs, and your savings goals. You can also use an online EMI calculator to find a plan that works for you.
If your EMI seems too big, here is what you can do:
- Borrow a smaller amount
- Choose a longer loan period so the EMI gets smaller
4. Keep an Eye on Your FOIR (Fixed-Obligation-to-Income Ratio)
If you use a big part of your monthly income to pay back loans or credit card bills, it can hurt your chances of getting a new loan. Lenders might think you are too risky and may say no to your loan request or give you a loan with a very high interest rate.
Try to keep your FOIR between 40% and 50%. This means only 40% to 50% of your income should go toward paying off debts. If your FOIR is too high, pay off some of your loans or credit card bills to lower it.
5. Do not apply for Too Many Loans at once
If you suddenly need money, you might think it is smart to apply for loans from many banks or lenders at the same time. You might hope that at least one of them will say yes. But this is not a good idea.
Each time you apply for a loan, the lender checks your credit report. These checks are called hard inquiries,” and they can lower your credit score. A lower credit score makes it harder to get a loan in the future.
6. Look for the Right Lender for You
Not all lenders are the same. Some banks or companies are better for certain people. For example, if you are young, do not earn a lot, or need money for something special like a small business or a vehicle, you should look for lenders that focus on those things.
Do some research online or ask around. You might find a lender who understands your needs and is more likely to say yes.
7. Combine Your Other Loans First
If you already have a few different loans, that might scare off new lenders. They might think you are borrowing too much. One smart move is to consolidate your other loans. This means you combine them into one loan, so you only have to make one payment each month.
This helps you stay organized and shows lenders that you are taking control of your debts. If you are already paying back a loan properly, that is actually a good sign for lenders.
8. Get Your Information and Documents Ready
Once you choose the lender you want to go with, it is time to apply for the loan. The lender will need to know who you are, how much money you make, and what bills you already have to pay.
Get the following ready:
- Your job and address details from the last 2 years
- How much money do you make before taxes each month
- What do you still owe on any loans or credit cards
- The minimum payment you make for each loan or debt
You will also need to show proof of who you are. Some lenders can find your work details using just your Social Security number and your employer’s name. But sometimes, you may need to give a recent pay stub. If you are self-employed, a tax return might be needed instead. You may also need to show recent bank statements or just give your account number.
If your credit report has any problems (like late payments or a collection), be ready to explain them. For example, if you missed a payment because you were sick, write a short letter about it. If you have made changes to avoid missing payments again, say what you have done. This can help your chances.
9. Only Borrow What You Can Pay Back
Do not try to borrow more money than you can handle. Lenders will check how much money you earn and spend each month. If it looks like you can not afford to pay the loan back, they will reject you.
Be honest on your loan application and only ask for what you really need. If you can prove that you can pay it back, your chances of getting approved go way up.
10. Apply for the Loan
Most people apply for loans online through websites or apps. It is fast and simple. But if you prefer, you can also call the lender or go see them in person. How you apply would not affect your chances of getting the loan.
Some lenders let you “prequalify” without doing a hard credit check. This is called a soft inquiry and would not hurt your credit score. Prequalifying helps you see if you meet the lender’s rules and gives you an idea of how much you can borrow and what your monthly payments will be. If the loan amount seems too high, you can always lower it before applying.
While filling out the loan form, keep all your documents nearby. If you do not understand a question, ask for help. The lender should explain things clearly. If they do not help, that is a warning sign, and you might want to look for another lender.
11. Get Your Loan Money
After you turn in all your documents, agree to the loan terms, and sign the final form, the lender will send you the money. This can take a few hours or up to a few working days.
There are 3 common ways you can get your money:
- Debt Consolidation – The lender pays off your other loans directly.
- Paper Check – You get a check in person or through the mail.
- Bank Transfer – The lender sends the money straight to your bank account (this is the most popular way).
Your first monthly payment is usually due about 30 days after you get the money.
Conclusion
Getting a personal loan can be simple if you are prepared. Have your papers ready, know your income and debts, and check your credit report. Apply online or in person—whatever feels easiest for you. Once you get the loan, make your payments on time. This will not only help you stay out of debt but also improve your credit score for the future. Most lenders let you set up automatic payments, which is a great idea. Paying on time every month can help you build a strong credit score.