If you are looking to secure a loan of any kind, the fear of getting rejected is real and warranted. However, there are steps you can take to maximize your chances of succeeding and they revolve around presenting a genuine need for the money and an impression of credit worthiness. Whether looking to add some rope to their financial leeway, to start or boost a business, or cater to emergencies, people of all classes find themselves needing a loan from time to time.
Unfortunately, the financial services sector is not set up to help you while you are down but rather to make profit and to minimize risk to themselves. In a sense, this creates an ironic scenario where loans are more likely to go to those who need them the least rather than where the need is direst. In other words, the worse your finances are the greater your need for a loan but at the same time the lower your chances of qualifying for that loan.
Strategies for maximizing your chances of receiving a loan
1. Apply for a loan amount that fits your income
One of the biggest reasons for financial institutions rejecting loan applications is applicants asking for amount that their salary or income cannot realistically repay. Your income-debt ratio is an important consideration that lenders use when weighing the decision to grant or not to grant you a loan. In many cases, lenders make available their stipulations on loan qualifications. These stipulations, which may be found on the lenders’ websites, flyers or other platforms act as a good guideline when choosing the loan amount to apply for.
2. Take care of your credit rating
The credit rating is the central tool that lenders use to determine the merit of a potential credit recipient. Maintaining it at a desirable level is a long-term strategy that involves faithful repayment of existing credit facilities. There are many cases where people’s credit scores have been completely ruined by repeatedly failing to pay small loans or credit card debt. Many financial experts advise that you should keep your credit score above 750 if you are hoping to maximize the approval.
3. Update your credit report
It is not uncommon for loan applicants or credit bureaus to submit credit reports that are either incomplete, outdated or inaccurate. Errors in your credit report can lead to an unfavorable decision from the loan provider. It is important to ensure that your credit report accurately captures your income changes, historical loan repayments and credit card information. Credit bureaus such as Equifax and Experian which provide banks with individuals’ credit information offer free copies of credit reports which you can use to verify that your credit information is in order at all times.
4. Avoid applying for too many loans
Applying for multiple loans within a short time of one another may be a red flag to the lender that your finances are potentially problematic. Holding a large amount of credit signifies a high appetite for credit and marks you to the lender as a high risk borrower. You should apply for loans only when you have genuine need for money rather than any time your eligible for one.
5. Consider using collateral
If you have a valuable asset such as a house, jewelry, or property you might want to consider attaching it as collateral to the loan. Collateral provides the lender with extra assurance that their advance to you is safe thus feeling more inclined to grant the loan. When looking to finance an asset, placing a down payment to the seller gives confidence to the bank on the intended purpose of the loan.
6. Maintain a positive relationship with the lender
This is a long-term strategy that involves showing fidelity to your lender. This can be done by maintaining an active account with them and repaying their credit facilities in time. A bank that handles your salary and deposits is likely to be more inclined to grant a loan than one where you are newcomer. It not only places you in their good graces as a matter of policy but also expedites the review process for your loan application. Additionally, choosing a local bank may improve that your loan request application will be viewed favorably.
7. Prepare a sound reason for requesting the loan
In order to avoid non-performing loans, banks want to ensure that they are lending for productive purposes. Depending on the type of loan you are seeking, you need to prepare compelling explanations on the intention of the loan to increase your chances of succeeding. For a business loan, a well drafted business plan may tip things in your favor; for a mortgage, you need to demonstrate value for money on the targeted property; and for personal loans, a genuine explanation of need will help.
Resources:
1. https://www.allbusiness.com/five-things-you-can-do-to-increase-your-chances-of-getting-a-business-loan-900-1.html
2. https://www.finder.com/avoid-personal-loan-rejection
3. https://loanscanada.ca/loans/how-to-avoid-being-rejected-for-a-loan/
4. https://www.creditmantri.com/article-how-to-avoid-personal-loan-rejection/
5. https://sr-organisation.org/610/applying-for-personal-loans-how-to-avoid-being-rejected/
