Money is what everyone requires to survive. Without money, it is very hard for anyone to live peacefully. But you know the biggest problem people have, they cannot have an infinite amount of money. They have to follow what they have.
When we talk about money scarcity, it must be taken into account that if you want more money you can have it. Yes! That money will be in the shape of a loan but it will come with a price which, in the language of finance, called interest. And this is where things get tricky.
There are a bunch of loan types to choose from and every loan has some special requirements. Like if you are going for an equipment loan, the loan is specifically for buying equipment and you are required to submit the invoice to get the money. But this is a typical business loan that is easy to get and businesses do not mess it up. However, there is a type of loan which is easy to get but most people mess it up and make it difficult for themselves to get. That loan is “Personal Loans.”
Yup, you got it right. Personal loans are the loans that are given just based on your credit score. These loans are unsecured which means, you do not have to give any collateral (Something worth equal to the borrowed money) but they do look at your creditworthiness and upon that bases, they decide should you be given loan or not. So are you ready with your personal loan application?
Wait! You might not be ready for your personal loan yet. There are more things to be considered than just creditworthiness. This is the reason you might get rejected in the first place. So have these following 8 tips so that you get the approval of your personal loan.
Having your homework done
When we talk about homework, we mean the preparation of your personal loan. No one can just simply walk in and apply for the loan and get the money. You have to give some papers to get a personal loan. In New Zealand you need the following documents to get your loan so keep them prepared when applying:
- Driving license.
- 18+ card.
- Your Birth certificate.
- Utility bill.
- Your annual, after-tax salary slip.
- Tax returns (if self-employed).
- Bank statements.
There are a bunch of documents required so keep them prepared when you are going to apply for the loan. If they are prepared, you will be good to go.
Do not ignore your credit score
As we discussed earlier, you are judged on the bases of your credit score. You have to keep that in mind. The reason this score is important is that, since there is no collateral for the money borrowed, a lender needs to check whether you have been paying your loan back. If you have a good credit score, you will get the loan do not worry but if not, you are in a little bit of trouble.
Your income must be good
Remember we said in the beginning that you have to pay the cost of borrowing the money? Well, that cost is interest payment. A lender in the case of personal loans tends to keep the interest rate high because they want to secure that since there is no collateral to back the loan money. Hence they try to keep the interest rate high so that they can secure their cash. So you must have sufficient income so that you can handle their monthly payment.
Know the purpose of the loan
Again if we refer back to the introduction part, we shared that equipment loans are the one which can only be used to purchase the equipment. It is the limitation of that money usage. A similar case is for personal loans. Although they can be used for many things but still for some things you cannot use them. For instance, if you are going to invest the money in cryptocurrency, you will not get the loan approval. Hence they try to keep the interest rate high so that they can secure their cash distribution.
Hunt the correct lender for you
For loans, a borrower has many lenders to borrow money from. But every lender has some specific criteria. If you apply for a loan to a lender who requires a monthly income of $1,000/- but you have $900 you will not get a loan. So keep your head up and check the criteria which every lender needs you to match.
No repayment mishaps in the past
As you know, a lender cannot ask for collateral against the loan he is giving to you. So he tries to keep the interest rate high. The reason given by the lender is that they do it to secure their money. So if you have missed a repayment, it is recorded into your credit history and hence this might increase the interest payment which ends up having you not being able to pay the monthly payments and get rejected.
Show a good saving record
People who apply for loans are mostly those who run out of cash and are not financially responsible. However, if you are going for a loan like Personal loans, it is great that if you show them your savings. This will demonstrate that you are responsible and can repay the loan monthly payments.
Do not apply to too many lenders
Lenders know everything. You know everything is recorded digitally, especially if we talk about banking and money. Lenders will see how many times your application was rejected and will me they worried that why you were rejected. This may result in more rigorous scrutiny of yours and hence you might get rejected. So apply to lenders one by one but do not apply unless you are sure you want it.
Personal loans are one of the easiest loans to get but most people tend to lose their way and mess things up. Because there is no collateral that has to be submitted to get the loan and also you do not have to pay any sort of huge transaction fees for it. However, all you have to do is to maintain and present a good credit score. If you do not have the basic documents ready or have completed the homework before applying for a loan, you will be rejected. This rejection will be recorded in your credit history and another lender will know about it and will make them question you. If that happened you will be rigorously scrutinized.
In the end, just remember this thing. If you are eligible for a loan it does not mean that you have to apply for every one of them. Just look at what do you need and apply as per your requirement. Plus do read the documents very carefully because this is a money matter and you cannot take your eyes off from the smallest glitch in it.