Whether you are applying for a more sizeable home loan or a smaller personal loan, your chances of approval will be much greater if you are prepared and pre-empt any concerns your chosen lender may have.
“It’s pretty important that you can present to the lender that you have a positive cash flow and that you are able to create savings,” Fraser Jack, owner of 123 Financial Services, said.
“They want to see that you’ve been budgeting for at least three to six months, and that you’ve been saving for that period.”
Knowing what the lender is looking for will help you prepare a bullet-proof application.
“A person looking at your application in a bank has a job to do. Their number one priority is to not put the bank at risk,” Jack explained.
“If something is outside their criteria, they will start asking questions. Think about what the questions are likely to be and address those questions before they are asked.”
For example, before you apply for a loan, run a check on your own credit report for any black marks, such as a default or late bill payments.
“Bring it up before the question is asked and provide the answers the bank will want to know: what happened, is it resolved, is it going to happen again?” Jack said.
“If you make it easy for them, they will be happier processing your application. If they have to ask questions, that’s not a good thing.”
Credit card debt can also be a hindrance to loan approval, so reduce it as much as possible before applying for a loan.
“Lenders don’t like credit card debt because it’s so easy to create more debt,” Jack added.
With any existing loans you may have, a lender can clearly see what your repayments will be each month, but you can always add more purchases to your credit card and increase your debt significantly in a matter of minutes.
Having a high limit on your credit card is also of concern to lenders – even if you are unlikely to ever spend that much – so once again the best course of action would be to reduce it.
“It’s an unknown for the lender so when they’re checking their boxes, it’s another thing you don’t want them to ask,” Jack said.
To increase your chances of a loan approval, stick to the following checklist:
- Check your credit history for areas of improvement and raise any issues before the bank asks, explaining what happened and why it won’t happen again.
- Reduce credit card debt and your credit card limit if it is high.
- Save consistently for three to six months before applying for a loan.
- Boost your savings – lenders want to see you have enough saved up to meet loan repayments.
- Show evidence that you have been sticking to a budget.
Compare personal loans by your chance of approval
If you’re in the market for a personal loan, aren’t sure whether you’d be approved, and don’t want to leave a mark on your credit history, you may want to consider the RateCity Personal Loan Marketplace.
Simply enter your details to compare personal loans based on your chance of approval, without affecting your credit score.