Many times, in our lives, we have to take personal loans to deal with an emergency, fund a trip, or buy something. After all, loans are one of the best sources to get extra money in difficult times or to make a purchase. Moreover, any purchase you make with a loan won’t levy tax because loans are non-taxable.
Personal loans are one of the most offered in Canada, but for many reasons, it is difficult to apply for them because it has a lot of complications. Certainly, every loan is different and is helpful in different situations. However, unlike quick short-term loans like online loans Canada bad credit, personal loans are more for the long term and have a slightly longer and more complex process than online loans.
So, here Instant Funding brings you 5 tips to make it easy for you to get a personal loan. These tips will not guarantee that you will get a loan but will increase your chances of getting approved for a loan.
5 tips to increase your chances of a personal loan
The CIBIL score is used to assess a borrower’s credibility and is intended to anticipate their ability to make payments.
The initial consumer filtering is typically done based on credit ratings. Getting accepted with cheaper loan rates is much more possible with an excellent score.
So, before asking for a loan, verifying your credit score and understanding where you financially stand is crucial.
Debt to Income ratio
Before you apply for a loan, ask the lender about the minimum salary criteria. For the purpose of calculating the borrowers’ income to debt ratio, lenders often review their latest three months’ worth of bank statements.
The amount you can borrow depends on your debt-to-income ratio. A greater percentage indicates that you are paying ongoing loans’ EMIs out of a sizable portion of your paycheck.
Therefore, ensure your set monthly EMI payments are less than 35% of your monthly income to improve your chance of getting a loan.
A consistent cash flow and a high CIBIL score may boost your likelihood of getting loan approval.
But the lender won’t view you as a reputable borrower if you don’t include all the necessary documentation with the loan application form.
As a result, there is a lower likelihood that your loan request will be granted. So, ensure your documents are updated and complete.
Typically, banks would need collateral (nearly equal to the loan amount) when you approach them to borrow a large sum of money, such as for home loans, business loans, student loans, etc.
Given the minimal risk and secured loan payback, borrowers with sufficient collateral will receive loans with better repayment terms and cheaper interest rates.
However, loans become non-performing assets when borrowers cease making payments and default for 4 to 5 consecutive months (NPA). In this situation, the lender would take the borrower’s collateral and utilize it as payment for losses.
Before choosing a lending partner, compare several lenders, banks, and NBFCs currently offer loans in the market at competitive interest rates.
It’s best to conduct some market research and obtain loan quotes from a range of lenders before choosing your lender.
Examine the processing costs, interest rates, terms and conditions, and other costs each lender is willing to offer.
Choose the option that offers the best rates based on your demands and requirements in the end.
It is recommended to go to a bank if you are thinking about taking out a personal loan for the first time or if you have no history with credit cards.
This is so because banks need less paperwork to process unsecured loans than private lenders.
If you keep these tips in mind while applying for a personal loan, then you will have a high chance of getting approved for a loan. However, it still won’t guarantee your approval on a personal loan because there can be several other factors that may result in the decline of your personal loan application.
Reasons your personal loan application may get declined.
Didn’t meet the criteria
Although practically everything can be paid for with a personal loan, there are some limitations you must follow. For instance, it’s typically not advisable to use a personal loan for education expenses. You can also be prohibited from investing or using funds for gambling. Your application can be rejected if you listed a loan purpose that falls beyond the lender’s guidelines.
Missing or false information
The lender might automatically reject it if important details or supporting documentation are missing from your application. Therefore, before submitting your application, check it over carefully, and provide any supporting files that the lender requests. To make sure the lender has everything it needs to approve your application, you might also give them a call.
Unstable or no income
Lenders look at your income, credit score, and DTI ratio to assess whether you can afford to repay the loan. Essentially, they want to be certain that you can afford your monthly payments and won’t disappoint them by not making them. The lender may deny your application if they determine that your income is too low for the amount you wish to borrow or if it fluctuates monthly.
High borrowing amount
Lenders may decline your request for a personal loan if you try to borrow more money than you can reasonably expect to repay. This is so because your income and other debts determine the loan amount you are approved for. After analyzing your financial situation, the lender may determine that you are ineligible to borrow a specific amount.
All these reasons can still impact the final decision of the lender. So, the lender may accept or reject the application based on these factors. Although some are under your control, such as a stable job and correct information, others can be situational.
So, if one lender doesn’t approve your loan, then you can try a loan from another lender. This is how you can get a personal loan in Canada. And if you need immediate assistance, you can opt for online loans in Canada with bad credit from Instant Funding.
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