Do you ever find yourself short on cash even when you just got your salary? Many people experience money problems at some point in their lives. A sudden medical bill or unexpected house repair may come up, and there’s not enough money to cover them. In some cases, people need extra cash to pay off credit card bills or to finance a vacation.
Whatever reasons you have for being short on finances, when you don’t have savings or an emergency fund to draw on, applying for a loan comes in handy in such situations. A lender, however, can deny your application, depending on the type of loan you want and your circumstances. This situation is even more challenging when it’s your first time borrowing money.
Luckily for you, here’s a list of tips that can help you get approved on your first loan. Boost your chances for loan approval by reading on.
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Understanding the Different Types of Loans
The kind of loan you’re planning on applying for can affect your chances of getting approved. Before filling out any forms, ensure that you understand the loan options available to you and how they work. Not all loans are the same, so find which one is most appropriate for your financial situation. This will help you not only get the approval you need but also the best deal out of all possible loans.
Here are the most common types of loans you can find out there:
Installment Loans
This type of loan allows you to borrow a lump sum of money, which you then need to pay back in monthly installments along with interest and other fees. The loan term, or the predetermined period you need to repay it, can vary depending on the type of loan you get and the amount you end up borrowing. Examples of installment loans include the following:
- Auto Loans: This loan enables you to buy a car. You borrow the cost of the vehicle and repay it in installments, typically over 12 to 96 months.
- Mortgage Loans: This loan lets you borrow a lump sum to purchase a house. You borrow the value of the property you want to buy and repay it in monthly increments over 15 to 30 years.
- Personal Loans: This loan allows you to borrow money for any purpose. You also need to repay it in monthly installments, which can last for around two to seven years.
Credit Card Cash Advance
You can get this loan from your credit card issuer and just like any other loan, it’s also subject to interest payments along with the principal amount. Instead of making a purchase using your credit card, you borrow money against the card’s line of credit.
A credit card cash advance is a quick way to get cash. You only need to go to a bank or an ATM and withdraw the amount you need up to your preset credit limit. Be forewarned though that this usually comes with higher interest rates and fees.
As mentioned earlier, cash advances come with interest fees, much like regular credit card purchases. The only difference is there’s no grace period. This means the advance will begin accruing interest the moment you complete the transaction. So even if you pay off all the cash you borrowed on the due date, you still have to pay interest.
Payday Loans
This type of short-term loan lets you borrow between $50-$1500 upfront. This amount is only enough to cover essentials like food, rent, or utilities. You also have to repay the total amount along with the interest in a single payment in two weeks. As the name implies, payment is due on your next payday or paycheck. Note that the interest rates of payday loans can vary depending on the regulations set by the state.
Now that you know some of the different types of loans you can access, let’s go over what lenders want to see when applying for a loan.
Build A Strong Credit Score
Your credit score has a bearing on your loan application. It’s a three-digit number that lenders look at to determine how creditworthy you are. A credit score of 300 and above is generally good. It tells lenders that you manage your credit obligations well.
If you want to ensure your approval chances and snag the best interest rates, you should build a good credit score as early as possible. Here are a few ways to get started if you don’t know how to:
- Make prompt payments on all your bills.
- If you have debts, pay more than the minimum on each payment.
- Apply for a credit card but always keep your balances low.
- Avoid applying for numerous loans all at once to prevent hard credit inquiries.
- Get a copy of your credit report from one of the credit bureaus and check any errors before applying for a loan.
Prepare Proof of Stable Income
Lenders want to make sure that you can pay them back, so your income is a primary consideration when applying for a loan. Most lenders require proof of income before they even consider your application.
If you’re employed, you’ll need to show at least two pay stubs, two years of Wage and Tax Statements, and/or a letter from your employer. For those who are self-employed or have a small enterprise, you’ll need to provide bank statements and two years of tax returns. If applicable, remember to include other sources of income to increase your chances of approval.
Apply With A Co-signer
If your credit score and sources of income don’t meet the lender’s requirements, applying with a co-signer is another option you can try. It can be a family member, co-worker, or friend who has a good credit history and proof of steady income.
A co-signer will sign your application and have to agree to repay the loan if you fail to do so. Although this is a great way to get approved quickly, not all lenders accept co-signers.
Choose The Right Lender
The type of lender you work with also matters in determining whether you get approved or not. Each lender has different loan requirements, so shop around and find the right one for you.
Banks and credit unions are traditional types of lenders. They are a good option if you have an excellent credit history. You can even get small interest rate discounts if you already have an established relationship with them. Otherwise, you’re less likely to get approval since they can be strict with their qualifications.
On the other hand, online lenders are more lenient in terms of requirements. They also have quicker turnaround times. You can apply with an online lender from anywhere, provided you have internet access. Most of them, however, charge an origination fee.
Only Borrow What You Can Afford
Whether it’s your first time getting a loan or your fifth time, you should only borrow what you can afford. Remember that a loan is not free money. So when applying for one, make sure you consider how you’re going to pay it back. After all, getting approved won’t be a problem if you can show lenders you’re capable of repaying them.
