Studies have shown that over 12 million households take small-dollar loans each year.
This statistic shows just how important these loans are to the society we live in. But, getting your loan approved upon application isn’t as straightforward as it seems.
In addition to providing your personal information and other requirements, most lenders will also pay attention to your credit score.
If you have a bad credit score, chances are, your loan won’t get approved. Fortunately, you’ve got options!
1. Rebuild Your Credit Score
One of the easiest ways to get approved for a loan is by rebuilding your poor credit score.
It sure does take a lot of time and you’re likely to pay high interests rates. But eventually, your chances of approval will be much higher. Moreover, improving your credit score gives you access to a wider range of lenders, boosting your approval rate.
You can start by checking your credit report for incorrect debt amount that might be hurting your credit score. If possible, try to clear all your existing loans and credit card debt.
2. Enlist a Co-signer
Basically, enlisting a co-signer involves using someone else’s good credit score to offset your poor credit report. The co-signer also agrees to pay your loan in case you default.
Thus, you should look for a reliable person who is willing to help you pay the loan. You can make arrangements on the terms and how you’re going to pay them back.
Since all your payment information is available on both your credit reports, it’s best to ensure you make timely payments. This improves your personal credit score, making it easier to get a future loan without a co-signer.
3. Get a Secured Personal Loan
Unsecured personal loans may seem like a better option because they require less paperwork, but they may not be available to individuals with bad credit scores.
This is where secured personals loans come in. Even though the lender will demand collateral, secured loans are an ideal option when you’re in need of a loan for urgent needs.
You can use your assets to get a loan even with bad credit.
4. Peer-to-Peer Lending
Peer-to-Peer (P2P) lending is an online platform that provides bad credit student loans and other types of loans by connecting you with potential lenders. The lenders are mainly a group of individual investors who review the loan listings and choose the borrower they prefer.
These lending platforms are a great alternative especially if you’ve failed to secure a loan from the traditional institutions. You’ll also enjoy more lenient terms and lower interest rates as compared to borrowing from a bank.
5. Borrow from Friends and Family
Borrowing a loan from your close relatives and friends eliminates the hassle of borrowing from conventional institutions. No one will check your credit score or ask for collateral.
Nonetheless, don’t compromise ‘formalities’ on the basis of your familiarity with each other. Having a written document that states the payment terms, interest rates, and duration of pay can save you from complicating your relationship with a loved one.
Other Reasons Why Your Loan Application May Be Denied
In some cases, your loan application may still get rejected, and not on the basis of a poor credit score.
Here are some common reasons why the lender may reject your loan application.
Insufficient Income
No financial institution will be willing to lend you money if you have no proof of income. More so, your income ought to be sufficient to cover the full repayment within the stipulated duration. Fortunately, you can use your home as an income source.
When applying for a loan, ensure you’ve included your paycheck as proof of income before submitting the documentation requirements. If you’re self-employed, you should submit accounts that show a steady flow of business.
You might also have to prove that there are long-term contracts to ensure a steady flow of income.
Unpaid Debts
Having a couple of unpaid loans may make your loan application unsuccessful.
Whether it’s a mortgage, student, or a vehicle title loan; you’re required to clear your existing dues before applying for a fresh loan.
Most importantly, ensure that you pay the loan in full and on time to establish trustworthiness.
Loan Amount is Too High
When you’ve got a bad credit score, institutions may limit the amount of loan you can borrow. Applying for loans above the set limit will definitely result in your application getting rejected.
Therefore, it’s recommended that you apply for a loan that falls below or within the limits. Additionally, the amount should be within the range of your paycheck.
This guarantees the lenders that you’ll be able to meet the minimum monthly installments required to pay off the loan.
Poor Documentation
If you’re borrowing a loan from a bank, you need to ensure you’ve got all the necessary documents. Missing out on crucial requirements leads to rejection of your loan request.
The denial can also be due to discrepancies between the information in the documents you provided and the information the lender confirms.
For instance, if you indicated that your business earns $56,000 per year, but bank accounts show that your business earns only $40,000, then your loan will get rejected.
Failure to Meet Eligibility Requirements
At times, you may have provided all that’s required to get your personal loan, but end up disappointed with a letter of denial. This may be caused by failure to meet the unique requirements set by a lender.
They can be anything from a mandatory credit card information to having a certain amount of cash in your bank account. Thus, it’s important to carefully go through the terms and conditions of a particular lender before making a loan application.
Getting Your Loan Approved
Don’t let a bad credit score hinder you from getting your loan approved. The above loan tips should help you get your loan with less hassle. To stay on the right track and build your credit score, commit yourself to pay the loan on time. For more personal finance tips, check out this article on how to save money.
Photo by Alexander Mils
Mia Guerra
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