6 Bona Fide Ways To Secure a Great Personal Loan
One thing you need to know about personal loans is that there are good and bad ones.
What distinguishes a good loan from a bad one is the interest rate and the level of difficulty in paying off the loan. Bad loans like payday loans and cash advance loans, while helpful at the moment, can be financially devastating in the long run. The interest rate for payday loans usually ranges from 200%-500%, an outrageous amount. While the interest rate for cash advance loans is 400%, so if you’re strapped for cash, do not just settle for any loan.
Nonetheless, the loan that’s right for you may just be out of reach, but today we’ll be giving the 10 best methods to secure a great personal loan.
1. Make Yourself a Desirable Borrower
Credit history, credit history, credit history. In terms of securing a personal loan, having an attractive credit is probably the most valuable method to ensure that you get the loan you need. Thus, before you look at any loans, good or bad, make sure your credit history is in order. A FICO score of 579 or lower is typically considered bad credit and most lenders will be wary of offering you a loan. While, according to Experian, even a higher score of 580 to 669 will put you in a tough spot with receiving a loan.
However, there are ways to boost your score:
- Pay your bills on time
- Cath up on your past due balances
- Dispute anything that looks off on your credit report
- Write a Goodwill Letter
2. Improve Your Debt-to-Income Ratio
DTI or debt-to-income ratio is a percentage that shows the amount of a prospective borrower’s income that goes towards their debt(s). Lenders use this percentage to determine your ability to fulfill monthly payments for the money you plan to borrow.
You can easily calculate this ratio by adding together your monthly debt. This can include bills, like heating and electricity, as well as subscription services. Once you’ve calculated your debt, divide it by your gross pay or the amount you earn before taxes. For instance, if you pay $900 for rent and $200 a month for heating, electricity, and internet, your monthly debt is $1,100. Now divide that by your gross monthly income, $2,500, and your DTI ratio comes to 44%.
Most qualified borrowers have DTI ratios lower than 43%, so it’s important to explore different routes to lower your monthly debts, such as reducing any unnecessary recreational activities or finding more affordable alternatives to monthly subscription services.
3. Eliminating High Interest Credit Card Debt
Speaking of ways to lower your debt-to-income ratio, eliminating any debt that comes with a 20% interest rate (APR), like high-interest credit cards, should be your first thing to do when lowering your DTI ratio.
Best ways to get rid of this type of debt:
- Transfer your debt to a 0% introductory APR credit card.
- Apply your “fun money” to your balance to whittle down interest rates.
- Double your payments to pay off your debt faster and save yourself from dealing with interest.
4. Increase Your Income
What many lenders don’t disclose to borrowers is their income requirements. Lenders have these requirements to make sure certain individuals have the means to pay off their debt. Income requirements vary by each lending institution; however, on average a good income is considered to be $15,000-$20,000 for the lowest amount of loans.
If you’re trying to increase your income fast, consider applying for jobs that offer tips—on average servers make $190 in tips a day—and jobs that have flexible hours, so you can easily make time for both your employers.
Once you’ve found another job and made a sizable amount of money, gather the necessary documents to prove your income, like monthly bank statements, tax returns, and pay stubs.
However, it’s also important to note that if you’re not making at least $15,000 a year, getting a personal loan may do you more harm than good, due to having to pay off monthly APR balances.
5. Consider Putting Up Collateral
It’s no one’s first choice to put up any item of their own for a personal loan, but if you don’t make the other qualifications, pledging any valuables may be the best way to secure a loan, particularly a secure personal loan (loans backed by collateral). Therefore if you fail to make payments, your lender can repossess such items like your investment account, collectibles, and other valuables.
6. Consider Alternatives
If you find yourself unable to get a personal loan using the regular route, then consider alternative types of personal loans. For one, a personal loan is not a one size fit-all type of loan, so you’re not alone in taking this route. Other types of personal loans to consider include:
Peer-to-Peer loans: P2P loans are personal loans; however, these type of loans are backed by individuals rather than lending companies and they offer more leniency compared to those companies.
Salary Advance: A salary advance is a loan that borrowers get from their employers. Borrowers of this type of loan essentially take funds from their future paychecks, without having to apply for funds through traditional lenders.
Financial Support From Family or Friends: If you enjoy your independence, it may be uncomfortable reaching out to others for help. But you must remember that your friends and family are there to support you, and you will regain your independence.
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