7 ways to increase your chances of approval<\/h3>
The best defense against personal loan rejection is knowing what it takes to be approved by a lender. These 7 tips should help increase your chances of getting that approval notice.<\/p>
Check the credit requirement and know your score<\/h4>
Your credit is one of the main factors lenders consider when you apply for a loan, especially an unsecured personal loan. Each has its own minimum you must meet in order to qualify.<\/p>
Not every lender requires excellent credit. But even if you have strong credit, if you don’t meet the lender’s requirement you will likely be rejected outright. If you’re unsure your credit score or history qualifies, ask the lender before you apply.<\/p>
You can also check your credit score<\/a> ahead of time so you’re working with the most accurate information possible when you’re comparing lenders. And it gives you a chance to look into any potential errors on your report before you apply.<\/li>
Check the minimum income requirement<\/h4>
Many lenders also have a minimum income requirement. This may not be listed on the lender’s website, so you could have to do some digging \u2014 either by calling the lender directly or browsing their website.<\/p>
Like your credit, this is one of the things many lenders consider necessary. After all, if you don’t have the income to pay back your loan, you can’t afford to borrow.<\/li>
Meet the employment requirement<\/h4>
Lenders generally consider income of various sources, but not always. Sometimes freelance work, benefits or child support payments won’t cut it.<\/p>
A lender may require you to have been employed by a company for a certain number of months or years, or that you receive your income through direct deposit.<\/li>
Have sufficient collateral<\/h4>
Some loans \u2014 especially those from banks \u2014 require you to provide collateral in order to borrow. This can take the form of a piece of property, or it can simply be a source of liquid money that your lender can use in case you default.<\/p>
You risk losing collateral if you default. But it lowers the risk the lender faces and can help you qualify or get better rates and terms. Learn more about what types of collateral can be used for loans.<\/a><\/li>
Limit your outstanding debt<\/h4>
Your debt-to-income (DTI) ratio<\/a>, like your income, is a measure of how much you can afford to borrow. It not only shows lenders that you can pay your loan each month, but also that you’re responsible with your money.<\/p>
A high DTI indicates that you’re using too much of your money paying off other debts. You might want to pay off some of your debts first if your DTI is over 40%.<\/li>
Ensure your loan purpose is allowed<\/h4>
Although personal loans are open and can be used for a number of things, not every lender allows your loan to be used for just anything. For example, you may not be able to use your loan funds for secondary education expenses or your business. Check with your lender to make sure you can apply your funds to whatever you need.<\/li>
Verify your details<\/h4>
Before you hit submit, double-check your application. Missing even small details could result in a rejection. If a lender can’t verify your details, it won’t be able to offer you a loan.<\/li><\/ul>
4 steps to take after being denied<\/h3>
Getting denied for a personal loan can take a toll on your emotional and financial state. Rather than accepting the rejection, follow these steps to work toward a successful application next time you apply for a loan.<\/p>
1. Find out why you were denied for the loan<\/h4>
If you contact the lender, you’ll be provided with an explanation of why you were denied for a loan. That explanation will be useful in determining what went wrong for you.<\/p>
2. Order a copy of your credit report<\/h4>
Before you re-apply for a loan, you should order and examine your credit report for accuracy. You can receive a copy of your credit report from one of the two credit bureaus in Canada:<\/p>
- Equifax<\/li>
- TransUnion<\/li><\/ul>
You’ll need to provide your full name, contact information, Social Insurance Number and date of birth in order to receive your report. When examining your credit report, look for any errors.<\/p>
3. Try a different lender<\/h4>
Requirements and eligibility criteria can vary between different lenders. You always have the option of researching other lenders for a personal loan that could meet your needs. However, you’ll want to limit how many times you re-apply for a loan before addressing the issues that underlie your loan denial.<\/p>
Each time you apply for a loan, the lender will conduct what’s called a “hard pull” on your credit score, potentially affecting your credit score by about 5 points for a year. If you continuously apply and are denied for loans, you could end up lowering your overall credit score substantially since lenders will be looking into your credit score each time.<\/p>
4. Take some time to address your finances<\/h4>
Consider waiting before attempting to apply for another personal loan. With time on your side, you can work to improve your financial situation by paying down your debts, or addressing the structural issues of your finances \u2013 which can increase your chance of approval in the future. Visit Credit Counselling Canada<\/a> to get connected to free counselling services.<\/p>
Bottom line<\/h3>
There’s no way to completely guarantee that your personal loan application will be approved. Even if you meet all the eligibility criteria listed by a lender, the lender can still reject your application at its discretion.<\/p>
However, you can avoid common mistakes that lead to personal loan application rejection and follow the tips we’ve discussed to improve your chances of approval. You can also compare your personal loan options<\/a> to find more lenders you may be eligible to borrow from.<\/p>
Frequently asked questions<\/h3>
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