A personal loan provides a flexible means of funding various types of expenses. These loans can range from a low amount of $600 to the six digits. Borrowers may use personal loans to subsidize medical bills, car repairs, wedding expenses, funeral costs, and home renovations. They may also use the money for other purposes, such as debt consolidation.
The criteria for loan approval can vary for each lender. However, there are strategic ways to maximize your chances of getting approved.
In this article, I will discuss the most effective tips to boost a typical personal loan applicant’s shot at approval. These tips include working on your debt-to-income (DTI) ratio, increasing income, finding ways to prequalify before formally applying, and improving your credit score.
In addition, to help borrowers who might not be eligible for a conventional loan, I will differentiate traditional loans from VA direct and VA-backed veterans home loans.
While such loans still require income and credit for the loan amount you wish to borrow, they may offer better terms than regular personal loans from a credit union, private bank, or mortgage down payment. I will explain the advantages of getting a VA loan, which includes the omission of a down payment requirement 90% of the time.
Through this article, readers will become aware of their options to get the best possible shot at the loan they need to accomplish their life goals.
By the Numbers
As of the third quarter of 2023, Americans collectively held $241 billion in personal loan debt, reflecting a 3.9% increase from the previous quarter’s $232 billion and a notable 14.8% surge from the same period a year ago.
This indicates a significant upward trajectory in personal loan obligations. The number of Americans with personal loans has also risen, reaching 23.2 million in the third quarter of 2023, compared to 22.0 million in the preceding year. This marks a 5.5% year-over-year growth, underscoring the increasing prevalence of personal loans among the populace.
Personal loan debt also makes up 5.0% of non-housing consumer debt, constituting 1.4% of the overall consumer debt landscape in the third quarter of 2023.
In contrast, credit card debt among Americans stands at a substantial $1.079 trillion, forming 6.2% of the total outstanding debt. These figures highlight the varied composition of consumer debt and the distinct role personal loans play within it.
The delinquency rate for personal loans, defined as payments being 60 days or more overdue, currently stands at 3.75% as of the third quarter of 2023. This marks a decline from the previous year’s rate of 3.89%, indicating a positive trend in loan repayment behavior among borrowers.
The average personal loan debt per borrower has reached $11,692 in the third quarter of 2023, showcasing an increase from the average of $10,749 observed a year earlier. This uptick in individual debt highlights the evolving financial landscape and the growing reliance on personal loans to address financial needs.
Notably, most borrowers (52.9%) opt for personal loans to consolidate debt or refinish credit cards. Home improvements are the second most common reason, accounting for 7.5% of personal loan purposes. This insight sheds light on the diverse motivations behind individuals seeking personal loans and the financial challenges they aim to address through this financial instrument.
Approval Boosters: Understanding What’s Required
Personal loans are a type of unsecured debt that borrowers may use for various purposes, such as consolidating high-interest credit cards, paying for medical expenses, car repairs, wedding expenses, funeral costs, or funding a home improvement project.
Unlike secured loans, personal loans do not require collateral, which means the lender relies on your creditworthiness and income to determine your eligibility and interest rate.
However, getting approved for a personal loan is not always easy, especially if you have a low credit score, a high debt-to-income (DTI) ratio, or a limited income. Lenders use different criteria to evaluate your loan application, such as your credit history, income, employment status, and existing debts. These factors help them assess your ability and willingness to repay the loan on time and in full.
If you do not meet the lender’s minimum requirements, however, you may face rejection or unfavorable terms, such as a higher interest rate or a lower loan amount. This can affect your financial goals and credit score, as each hard inquiry from a lender can lower your score by a few points.
Improving your success rate
Fortunately, there are some effective ways to boost your chances of getting approved for a personal loan. Here are some tips to consider before you apply:
- Work on your DTI ratio: Your DTI ratio is the percentage of your monthly income that goes toward paying your debts. The lower your DTI ratio, the better your chances of approval, as it shows…
Read More: Boosting Your Odds of Loan Approval