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There’s no universal formula for getting approved for a personal loan. Requirements such as credit score and income vary by lender, and some online lenders consider nontraditional data, like employment history or education level.
But loan companies have one thing in common: They want to be paid back on time, which means they approve only borrowers who meet their requirements. Here are six tips to boost your chances of qualifying for a personal loan plus some alternative borrowing methods.
» MORE: Compare top personal loans
1. Clean up your credit
Your credit score is a major consideration on a personal loan application. Generally, the higher your score, the better your chance of personal loan approval.
Check your reports for errors. Common errors that may hurt your score include accounts incorrectly reported in your name, closed accounts reported as open and incorrect credit limits, according to the Consumer Financial Protection Bureau.
You can get your credit reports for free once a week at AnnualCreditReport.com. With evidence to support your claim, dispute any errors online, in writing or by phone.
Get on top of payments. If you’re not already, be diligent about making on-time payments toward all your debts, paying more than the minimums when possible. This will benefit your payment history and credit utilization ratio, which is the percentage of your available credit that you’re using. Together, your payment history and the amount of debt you owe make up 65% of a FICO credit score.
Request a credit limit increase. Call the customer service numbers on the back of your credit cards and ask your creditors if you can get an increase without a hard credit check. This can be an easy way to lower your credit utilization ratio without having to pay down account balances. You have a better chance of getting a credit limit increase if your income has risen since you acquired the card and you haven’t missed any payments.
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2. Rebalance your debts and income
Loan applications ask about your annual income, and you can include money earned from part-time work and other sources, like alimony or child support. Consider increasing your income by starting a side hustle or working toward a raise at your full-time job.
Also, do what you can to pay down debt.
Boosting your income and lowering your debt improves your debt-to-income ratio, the percentage of your monthly income that goes toward debt payments. A DTI under 36% is ideal, but lenders may accept higher debt-to-income ratios. A lower ratio shows that your current debt is under control and you can take on more.
3. Don’t ask for too much cash
Requesting more money than you need to reach your financial goal can be seen as risky by lenders and may make it harder to get approved.
A larger personal loan also squeezes your budget, as higher loan payments impact your ability to meet other financial obligations, such as student loans or mortgage payments. Use the calculator below to estimate your potential monthly payment on a personal loan based on your desired loan amount, repayment term and estimated APR.
Personal loan calculator
4. Consider a co-signer or co-borrower
If you have a fair or bad credit score (below 690), adding a co-signer or a co-borrower with stronger credit and income can increase your chances of approval. A co-signer essentially vouches for your ability to repay the loan while a co-borrower shares the loan funds and repayment responsibility. In both cases, failure to repay the loan will impact your co-applicant’s credit.
Lenders may be more inclined to approve a co-signed or joint loan application, because it provides an additional person who is legally responsible for repaying the loan. Make sure anyone you ask to be a co-signer or co-borrower fully understands their obligations and the risks before agreeing.
» COMPARE: Personal loans with a co-signer
5. Use collateral to secure the loan
You may have a better chance of loan approval if you apply for a secured loan. A secured loan requires you to pledge an asset that you own — typically a vehicle or savings account — as collateral that the lender can take if you don’t repay the loan as agreed.
Secured personal loans are less risky for lenders than unsecured loans, because they can use the pledged asset to recoup any losses. Not all lenders offer secured loans, but those that do may have looser borrowing requirements or charge lower interest rates for secured loans.
» MORE: Best secured personal loans
6. Find the right lender
Each lender has its own requirements and may offer different loan amounts and features compared to other lenders. Do your research to see which lenders are most suitable for your financial situation and borrowing needs.
Here are our top lender picks for borrowers in each credit score band:
If you meet a lender’s minimum qualification requirements and want to see estimated rates and terms, you can pre-qualify for a personal loan. Pre-qualifying usually triggers a soft credit pull, which does not impact your credit score.
Pre-qualify with multiple lenders to compare rates and terms. The best loan option has low interest costs and monthly payments that fit into your budget.
Alternatives to personal loans
Compare personal loans with these borrowing alternatives to find the most affordable option that matches your needs.
0% APR credit card: A credit card with an interest-free promotional period can eliminate the cost of borrowing if you pay off the balance before the period ends, usually 15 to 21 months. You’ll typically need good to excellent credit to qualify.
Buy now, pay later: Many retailers offer “buy now, pay later” plans that split the cost of a purchase over a few weeks, often without charging interest. These plans typically don’t require credit checks, but the ease of getting them can lead to overspending.
Cash advance apps: Cash advance apps let you borrow a few hundred dollars from your next paycheck with no credit check. Some charge fees for monthly subscriptions or expedited funding. These apps also frequently ask for an optional tip.
Home equity financing: Homeowners may be able to tap into their home’s equity to secure a home equity loan or home equity line of credit. These borrowing options usually come with lower rates than unsecured personal loans or lines of credit, but you risk losing your home if you fall behind on payments.
Frequently Asked Questions
What affects personal loan approval?
Many lenders make decisions on personal loan applications based on the applicant’s credit score, income and debts. Some lenders factor in alternative data such as education or employment.
Can I get a personal loan with bad credit?
If you have bad credit, try getting a personal loan from an online lender or credit union that has a minimum credit score requirement below 630. You can strengthen your personal loan application by adding a co-signer or co-borrower with a higher credit score or by opting for a secured personal loan.
What happens if a lender rejects my application for a personal loan?
If you’re denied a personal loan, the lender must tell you why, and you can use that information to improve your chances for loan approval in the future. If you need money right away, consider alternatives to a personal loan, such as a cash advance app or buy now, pay later plan.
