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How Can You Boost Your Chances of Getting Approved for a Personal Loan?

by Christy Bieber | May 3, 2019

The Ascent is reader-supported: we may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation.

Tablet showing an 811 excellent credit score

Image source: Getty Images

When you apply for a personal loan, the last thing you want is for your loan application to be denied by the lender. The good news is, there are some concrete ways to give yourself the best shot at a loan approval.

Not sure where to start? Take these key steps before and during the loan application process to ensure you're the type of qualified borrower that lenders love.

Get your credit report in shape before applying

Your credit score is one of the most important factors lenders consider when deciding whether to give you a personal loan. You'll want your credit score to be as high as possible before applying. To make sure your credit report is ready to impress a lender:

  • Check your credit report for mistakes: As many as 1 in 5 credit reports contains an error. If your report has errors on it, this could lead to a denial based on inaccurate information. It can take time for an investigation to take place and for incorrect account information to be removed from your report, so check your credit at least 30 days before applying for a loan and keep an eye on your report during the time leading up to your application.
  • Pay down debt and keep credit card balances low: Your credit utilization ratio, or the amount of credit used relative to the amount of credit available, is an important factor in your credit score. Paying off debt will improve this ratio and boost your score so you become a more attractive borrower.
  • Make all your payments on time: A single late payment could be devastating to your efforts to get approved for a personal loan, so it's imperative you pay every bill on time in the months leading up to getting a loan.
  • Avoid applying for too much new credit: When you apply for a new loan or credit card, a "hard inquiry" goes on your report and remains there for two years. A single hard inquiry will only make a tiny dent in your credit score, but an excessive number of inquiries can seriously damage your score and make you a much less attractive borrower. When shopping around for loans, try to get quotes from lenders that do a "soft inquiry," which won't be reflected in your credit report or score.

Stick with your job and keep your income steady

Your income is another important financial factor in the loan approval process. Lenders need to know you're making enough money to pay back the loan, and they also want to see that your income comes from a reliable source, such as a steady job.

You don't want lenders to see a big drop in your income or a change in jobs right before you apply for a loan. Try to keep your work situation the same in the months before you take out a personal loan so you can show you're a responsible borrower with the funds needed to repay what you owe.

The Ascent's picks of the best personal loans

The Ascent's picks of the best personal loans

Looking for a personal loan but don't know where to start? The Ascent's picks of the best personal loans help you demystify the offers out there so you can pick the best one for your needs.

See the picks

Choose a lender that's well matched to you

Different lenders cater to different kinds of borrowers. There are lenders out there that only lend to the most qualified borrowers with the highest credit scores. There are others that advertise how they look beyond credit reports and consider other factors, which means they'll be much more willing to lend to you even if your credit isn't perfect.

You don't want to apply for a loan from a lender that's highly exclusive unless you can meet their requirements. Be sure to read online reviews and check the lender's website to see what their approval requirements are and how selective they are in granting loans. Almost every borrower can find a lender who's right for them; you just need to shop around.

Don't apply for a larger loan than you need

The more money you borrow, the bigger the risk the lender takes on -- and the more income you'll need to show. Small loans are easier to get approved for than large ones, because lenders aren't putting as much money at risk, and these loans can be paid back even if your income isn't very high. So figure out exactly how much money you need to accomplish your goals and apply for the minimum loan amount required.

Keep your loan term short

Long-term loans also present a greater risk to a lender because the more time you have to pay off the loan, the greater the odds something will go wrong and leave you unable to make your payments. Plus, a longer loan term means it takes longer for the lender to get its money back (though it also means, in most cases, that the lender collects more interest).

For you, the benefit of a longer loan term is that your monthly payments will be smaller. But not only can these loans be more difficult to qualify for, but they also tend to be much more expensive over the long term because you pay interest for a longer period of time. Opt for the shortest loan term you can afford, both to keep costs down and to maximize your chances of loan approval.

Consider a cosigner

If you don't have the credit or income necessary to qualify for a personal loan on your own, think about asking someone with a higher income or better credit to cosign for you. Most personal loan lenders allow cosigners and consider their qualifications when deciding whether to approve a loan. Plus, cosigned loans are less risky for lenders, because the lender has multiple people to try to collect payments from.

Cosigning is a big risk for the person who guarantees your loan, so be sure to ask only people you're close to. And don't ask someone to cosign unless you are 100% confident you can pay back the loan, because otherwise your cosigner could see their credit ruined, and may also face debt collectors just for doing you a favor.

The Ascent's picks for the best debt consolidation loans

Want to pay off debt faster? Check out our shortlist of the best personal loans for debt consolidation and cut your monthly payment with a lower rate.

Pay off debt faster

These steps can dramatically increase your odds of a loan approval

As you can see, there are many ways to boost the odds you'll be approved for a personal loan. Start working on these steps today if you plan to apply to borrow soon, and you'll significantly increase your chances of hearing "yes" from a lender of your choosing.

Our Picks of the Best Personal Loans for 2021

We've vetted the market to bring you our shortlist of the best personal loan providers. Whether you're looking to pay off debt faster by slashing your interest rate or needing some extra money to tackle a big purchase, these best-in-class picks can help you reach your financial goals. Click here to get the full rundown on our top picks.

About the Author

Christy Bieber
Christy Bieber icon-button-linkedin-2x

Christy Bieber is a personal finance and legal writer with more than a decade of experience. Her work has been featured on major outlets including MSN Money, CNBC, and USA Today.

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