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How to Qualify for a Personal Loan
Due to the current circumstances, many families have fallen on hard times. Having a typical 9-5 job may no longer be enough to sustain your basic needs. For this reason, many turn to loans to receive some quick cash. Personal loans, in particular, are becoming increasingly popular, thanks to their flexible repayment terms and varying interest rates. When it comes to the process of applying for a personal loan, financial institutions usually have stringent requirements. Because knowledge is power, you must know what financial institutions are looking for in loan applicants if you do not want your request to be rejected on the spot. Check out the following expert tips you can employ to qualify for a personal loan.
Take a Look at Your Credit Score
For people who have never applied for a personal loan before, terms like “credit score” and “creditworthiness” can be a bit confusing. To understand these terms, you need to know that there are mainly two types of personal loans: secured and unsecured. As their name suggests, secured loans depend on collateral to ensure that borrowers repay the lenders on time. On the other hand, unsecured loans rely on the applicant’s creditworthiness.
Your creditworthiness can be gauged by taking a look at your credit score—a number that signifies your financial history. The more loans and monthly payments you default on, the lower your credit score will be. Lenders usually check your credit score first to see if they can trust you to pay back the loan on time. Applicants with low credit scores are often immediately rejected. Not all lenders require the same level of creditworthiness, so you might want to consider the requirements of different lenders and choose the one that is more likely to grant you the loan.
Get Proof of Your Income
Your credit score is not the only factor that financial institutions take into consideration when you request a loan. Getting a loan is a long-term financial commitment, meaning that you will have to pay yours back in chunks over the span of a few months or even years. Since lenders have to put their interests first, they usually do not accept applicants whose income cannot cover the monthly payments. Thus, you may need to offer the lender a copy of your pay stub to prove that you can, in fact, pay back the loan.
A pay stub is a detailed account of your pay, deducted taxes, and net salary. Using online pay stub generators to get a copy of your pay stub is both convenient and easy. Those generators take into account the variables every job entails. For example, not everyone gets paid on a monthly basis, so they offer a lot of options for workers who get paid by the hour. Generally, offering proof of your income is a necessary step and a big part of the application phase. So, make sure that you have a copy of your pay stub at the ready.
Lenders are often more flexible when it comes to granting secured loans. People who have a bad credit score and cannot qualify for an unsecured loan may have better luck applying for a secured one. If you have to go down that route, make sure that the value of your chosen collateral covers the loan you want to receive. In case of default, the lender will seize the collateral. Thus, it is not an optimal option if you know you will not be able to pay your debt. However, if bad credit is the only thing stopping you from getting your loan and you are sure your income will cover the monthly payments, there is usually no risk involved with this option.
Enlist the Help of a Co-signer
Co-signers are individuals who have high credit scores. In some cases, having a creditworthy cosigner can make lenders disregard your bad credit score or insufficient income. Your co-signer will be responsible for paying back your debts if you default on them. Since this process includes many variables, your co-signer should always be a close friend or relative—someone you trust, and they need to be able to trust you too. So make sure you discuss all the details with your co-signer before you apply for the loan to avoid any problems down the road.
Receiving a personal loan can help you get through times of economic disruptions and financial distress. However, like any financial transaction, it involves many intricate details. The process of applying for a loan can be a breeze if you know how to qualify for one. Your credit score and income, in particular, directly affect your chances of getting a loan. So, make sure to us