Applications for personal loans can be daunting, sometimes there is so much to read and interpret. For this reason, many applicants make mistakes on their loan applications. Unfortunately, filling out an application incorrectly can result in your loan being rejected, regardless of how minuscule the error is. To better your chances of approval, learn about the common mistakes made on personal loan applications and other ways you can increase your chances of approval.
Loan applications can be complicated and dull, no wonder mistakes happen! To better prepare for your next loan application with a personal loan lender, it can help to be aware of common mistakes so that you can avoid making them. Below is a list of mistakes commonly made on applications for financing.
Before you submit your personal loan application, you should ensure that you answer all of the questions and complete the entire application. If you fail to provide a crucial piece of information to the lender, your application may be rejected or delayed.
Most lenders require the following documents to assess your creditworthiness and verify your identity and finances:
Personal loan lenders use your full legal name to verify other information you’ve provided. For example, your full name as shown on the application should match the name on your bank account exactly. If your name doesn’t match the name linked to other information, the lender may not be able to verify your identity. Avoid using nicknames or other variations of your name on loan applications.
Personal loan lenders typically provide a list of requirements you need to qualify for a loan. Before applying, check the list to ensure that you meet the minimum requirements, including the following:
Your credit history can heavily affect your ability to secure a loan. Depending on the lender, you may need good credit to get approved for a personal loan. A good credit score in Canada is typically between 660 to 724. If your score is less than 660, you may need to apply with an alternative online lender that caters to bad credit borrowers.
Before applying, find out exactly what score your lender requires to get approved for a personal loan.
Your income should be high enough to cover all your current expenses, with plenty left over to make your new loan payments. The minimum income you need will depend on a variety of factors, such as the loan amount you’re applying for, your debt levels, your credit score, and the lender.
Your debt-to-income (DTI) ratio is another important metric that lenders use to assess borrowers and represents your monthly debt relative to your gross monthly income. Generally speaking, borrowers with a high DTI ratio will have a harder time keeping up with payments because of all the other bills they have to pay.
Lenders typically avoid working with borrowers with DTI ratios over 43%. If you fail to meet the lender’s minimum DTI requirements, your loan application may be denied. Rather than wasting your time, find a lender with requirements you can meet, or take some time to reduce your DTI to meet these criteria.
Lenders want to make sure that the information you provide on your loan application is completely accurate before extending credit. If you provide false or incorrect information, the lender will be unable to accurately verify your information, which means your application could be denied.
You might be tempted to add a few extra thousand dollars to your income or shave off some of your debt load when applying for a loan in hopes of making yourself appear more financially sound. But this is a bad idea for several reasons.
Creditors use your bank account information for the initial loan deposit and future loan payments. What you may not know is they use your account information to confirm your income as well. If you provide a bank account that is not associated with your paycheque or income, the lender may conclude that you don’t have a reliable source of income.
The amount you apply for should be reasonable for your financial circumstances and be enough to cover whatever you need the money for. Applying for too much money could communicate to the lender that you are high risk thereby leading to your application getting rejected.
Ensuring you fill out the loan application properly is one way of improving your chances of getting approved. Although, there are many other things you can do too. The following list is composed of ways you can better your chances of getting approved.
Your credit score is a major consideration for most lenders, particularly for personal loans. Before applying, look at your credit score and report. The first thing you should look for is errors, if you find one, reach out to the appropriate credit bureau to have the mistake corrected.
The higher your credit score is, the higher your chances of being approved for a personal loan. To help improve your credit scores, you can try the following:
If you can, get a second source of income from a part-time job or side hustle. The higher your income, the better your chances of qualifying for a personal loan. In addition, your debt-to-income ratio will benefit from a second source of income, particularly if you use your extra cash to pay down existing debts.
Part of the loan application process is finding a lender that suits you best. Every individual has unique financial needs, your lender should fit those needs. You may have to spend some extra time researching lenders and financial products, but it will pay off in the long run.
If your credit isn’t the best, you can use a cosigner to improve your chances of getting approved. The cosigner should have strong credit and high income as these factors will be assessed during the application process. Furthermore, your cosigner will be responsible for your payments is you can’t make them.
To help you get approved for a personal loan, it’s best to understand the loan application process.
1. Get Pre-Approved – One of the preliminary steps to applying for a personal loan application is getting pre-approved. You’ll need to fill out an application online with basic information about you and your finances. The lender will use the information you provide to pre-approve you for a loan, which is why it’s essential that there are no inaccuracies on the application. Based on the data you provide, the lender will provide you with an estimate of the loan amount you can get approved for, along with the associated interest rate and fees.
3. Provide Documents – If you’re satisfied with the offer and want to proceed with the loan, you’ll need to provide the lender with more detailed documentation to help them verify your identity and creditworthiness.
4. Get Verified And Approved – Once you submit your application, the lender will carefully assess it and verify all documents you provided. The lender will make a final decision about whether or not to approve your application.
5. Sign And Get Funded – If approved, you’ll sign off on the contract, and the agreed-upon loan amount will be deposited into your account or sent via e-transfer. You will need to start making payments towards repaying the loan right away according to the terms of your loan contract.
Every now and then, a lender will guarantee approval. This means that you will be approved for the loan in question before the lender considers an application or follows a loan approval process.
While this may sound great, beware of lenders that make such claims. No legitimate lender will guarantee approval without assessing a borrower in some way. Lenders have procedures in place to determine if a candidate is worthy to ensure that they don’t take on too much lending risk.
Lenders who claim that they don’t use these processes are likely fraudulent or scams because no legitimate lender can afford not to rely on risk assessments of their candidates. If a lender says they guarantee approval, it is advised that you find another lender.
Personal Loan Application FAQs
When you’re applying for a loan, it’s important that you do your part for the best odds of getting approved. This means filling out applications completely and correctly as well as doing what you can to better your financial position. After all, you don’t want to get rejected for a loan due to a small mistake that could’ve been avoided.
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Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.
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