If you are looking for a personal loan but find getting your loan application approved tedious because of specific roadblocks along the way, then you’re at the right place. Loan approval is hard to achieve because, nowadays, even large financial companies cannot approve small loan requests.
However, the good news is that taking a personal loan is easier than getting a business loan. Business startups are typically risky, with a higher chance of failure. That is why banks usually hesitate or charge high-interest rates.
In the case of personal loans, you do not need to apply for collateral like your house or other precious belongings. Your loan request approval depends on your credit history, reliability and liability, and the number of funds and assets you own.
You may need to take a loan for several reasons, like hosting a wedding, paying debts, or covering other expenses. You may apply for a personal loan under such circumstances.
That said, let us guide you through some helpful tips for approving your loan request.
1. Check Your Financial Records
Before applying for a loan, check your financial records, including your credit history. If you have loans to pay off, you can apply for instant approval debt consolidation loans online without much hassle. It allows you to trim multiple debts into one payment with flexible payment plans and fixed interest rates without collateral.
It will help improve your credit history by having a single debt repayment instead of several credit loans. It will also help pay off the loans in time.
Banks are financial institutions whose profits and earnings depend on prompt repayment with the set interest rates. This way, banks are more likely to issue loans if you have a good credit record. Therefore, having a solid and favorable credit record will improve your chances of loan approval.
2. Limit Your Debt Burden Ratio (DBR)
Before applying for a loan, examine your current debt ratio. Make sure you do not already have a lot of debt to repay. For example, the UAE Central Bank does not let creditors exceed a loan amount of 50%. If you make 10,000 AED a month, your monthly loan repayment amount cannot exceed 5,000 AED.
The State Bank does this to ensure that the debtor does not spend more than they can pay back, entering debt spiral mode.
Only apply for a loan if you are sure that you can pay it back with interest on time. In other words, ensure you do not borrow more than your capacity to pay. Otherwise, the bank may reject your application.
3. Work with a Listed Company with the Bank
Listed companies are those that have submitted their financial records to the bank to ensure their financial stability. Consequently, approach the bank that has listed your company for higher chances of loan approval.
Therefore, when the bank knows about the company you work in, they may offer you loans at lower interest rates or fixed rates. Alternatively, if your company did not list itself with the bank, the bank may charge a higher interest rate.
If your company is unlisted in any bank, you can contact the HR department and connect it with the bank. The two parties will then work out the details of the listings.
4. Get a Co-Applicant
If you cannot apply for a loan because of your low monthly income, you can get a co-applicant to sign the application with you. It can be your working spouse, a parent, a sibling, or a close relative. The bank will approve your and your co-applicants credit score, issue a loan based on it and set the interest rate accordingly.
Getting a co-applicant means that they agree to make the repayment if you cannot do so by yourself. It hedges against credit default risk, and the bank is more likely to approve your request.
5. Transfer Your Salary to the Bank you apply for a Loan From
If you earn a fixed salary each month and deposit it into the account of the same bank you are applying for a loan, the chances of loan approval are higher. It shows you have a stable income with a fixed monthly amount.
In this case, the bank may even charge a lower interest rate because you have a salary account in their bank. Banks will most likely approve loan applications of existing customers whose credit score and financial history they are familiar with.
Moreover, having a fixed salary gives you the upper hand. A variable amount transferred each month can lower your financial stability when applying for a loan, causing the bank to charge higher interest rates.
6. Get Pre-Approved for Loans
Many borrowers may not know this, but finding out whether you qualify for a pre-approved loan saves time and trouble. Reach out to banks that offer loan pre-approval requests.
Pre-qualifying yourself for a loan means not wasting your time applying for loans you may not be eligible for and filling out detailed loan forms and applications.
7. Compare Your Options
Do not risk everything on one bank, and apply for a loan from different banks. Some banks may offer higher interest rates but with flexible repayment options. Others may not be willing to loan out more than a specified capacity based on your income.
Do your research and find out about all the loan products before applying. Additionally, find out which loans are more suited to the income stream that enable you to pay back within the time limit while covering the interest amount. Therefore, compare your options realistically.
8. Have Multiple Streams of income
Having multiple streams of income will improve your chances of getting a loan of a higher amount. You may start a side hustle or receive rental payments from your property to improve repayment schedules.
Multiple incomes further ensure financial stability, enabling banks to give out loans and approve your loan request quickly.
To approve your loan request, you must establish a good credit score for the last six months before applying and not fall behind on repayments. If you miss making several payments, it will not leave a good credit impression on the bank, and it may reject your loan application.
If you have a low income, you can get a co-applicant or have multiple income streams to improve your chances of approving a loan request. Having a fixed salary with a listed company also helps approve your request with a lower interest rate.
Moreover, do not borrow more than your ability to repay and save yourself from long-term debt. It means not spending more than your capacity.
These tips will help enhance your loan application approval chances.