Personal loans serve as a quick financial solution, especially if you need money for an emergency. There’s no need to wait for the next payday or borrow money from a friend. However, before you hurry and submit your personal loan application, you need to get a few things in order.
Banks and other lending institutions will review your credit history before granting you a loan. Here are nine personal loan tips that can help improve your loan application:
9 Personal Loan Tips to Help Improve Your Application
1. Be Realistic with Your Numbers
Make sure you’re borrowing an amount you can realistically pay. You can use the debt-to-income ratio to measure how much of your salary should go to loan repayments. Debt-to-income ratio is a personal finance measure that compares an individual’s monthly debt payment to his or her monthly gross income.
To get your ratio, divide your total monthly debt payments by your gross monthly income.
For example, your monthly gross income is PHP 25,000, and your total monthly debt payments are PHP 9,500, your debt-to-income ratio is 38%. This means you spend 38% of your salary on monthly debt payments.
It’s best to keep your ratio low because lenders may not approve your personal loan application. This is one of the top tips on getting a personal loan.
2. Understand the Types of Personal Loans Available
You should learn about the types of personal loans in the market. You can get a secured or an unsecured personal loan, but what is the difference?
A secured loan uses one of your assets as collateral. If you can’t repay the loan, your lender has the right to seize your asset, which may be your vehicle or property. The lender may sell it to cover the money you owed. The amount you can borrow with a secured loan is typically higher than in an unsecured loan. The interest rates tend to be lower as well.
With an unsecured loan, you don’t have to put up collateral. If you miss repayments or default, your lender cannot take any of your assets to settle your debts.
The amount you can borrow with an unsecured loan is smaller. The interest rates may be higher as well. However, it doesn’t mean defaulting on an unsecured loan has no consequences. Your credit history will be affected if you don’t pay your loan.
3. Compare Personal Loans
Many financial institutions in the country offer personal loans, so it can get overwhelming. Do your research first so you know your options — this is one of the most important personal loan tips.
According to the Bangko Sentral ng Pilipinas, borrowers consider the interest rate, loan amount, repayment period, and ease of application when applying for a loan. You may consider these factors as well when comparing loan products.
Apart from these, you should consider your loan needs and how much you can afford. Banks won’t loan you an amount you can’t pay. So, when comparing different loan providers, ensure that the interest rate, processing fees, and loan term are realistic in relation to your financial standing.
4. Talk to Lenders
Get in touch with lenders to know more about their loan products. You may call their customer service hotlines or inquire via email.
You can also head to your local bank and ask questions about the personal loan application process, time frame, terms, additional fees, and repayment schemes. It may be time-consuming, but it will help you fully understand the loan you are trying to apply for.
5. Have Your Personal Loan Application Documents Ready
Before starting the personal loan application process, prepare all the documentation you’ll need. Different financial institutions may have different requirements, so contact your preferred lender ahead of time to get a checklist of the items you need to submit.
In general, you have to submit a fully accomplished personal loan application form, a photocopy of your valid ID, and proof of income. You may have to submit additional document requirements, depending on your lender.
Check your lender’s eligibility requirements as well. Typically, you must be at least 21 years old, and a Filipino citizen or permanently residing in the county. Some lenders may require a minimum gross basic monthly income to qualify for a loan application.
6. Check Your Assets and Liabilities
Assets are things you own like properties, vehicles, and other investments. Liabilities, on the other hand, are your financial obligations, such as credit cards or mortgages. Lenders may look at these when you apply for a loan.
So before applying for a loan, one of the personal loan tips you should follow is to check your outstanding liabilities. Debts can impact your credit history, affecting how much you can borrow.
7. Improve Your Credit History
Financial institutions look at your credit history to determine whether you are a trusted and disciplined lender. If you pay your credit card balances on time every month, this shows that you can make the monthly payments on your loans.
If you have maintained a credit card with good standing, this shows that you have the discipline to pay off personal loans spanning two or three years.
Here are some ways you can improve your credit history for your personal loan application:
- Pay your bills on time
- Pay your bills in full
- Spend less than your credit limit amount
- Keep old accounts (longevity counts)
- Avoid external factors that impact your history negatively (e.g. foreclosure, bankruptcy, etc.)
8. Make Sure You Have Proof of Income
You have a better chance of loan approval if you are employed, compared if you are a freelancer. The risk for banks is lower because you have a steady flow of income, meaning you can pay them back.
If you are self-employed, your lender may ask you to provide the following documents:
- A copy of your Income Tax Return (ITR)
- Your audited financial statements for the past years
- Necessary licenses or permits such as a DTI business permit or a SEC registration
These documents show that you have a history of earning and paying taxes. Take note of these personal loan tips.
9. Be a Disciplined Borrower
Financial institutions also consider borrowers who have multiple forms of credit that they are able to pay regularly.
For example, you have three credit cards with a total credit limit of PHP 150,000 and a car loan. You pay these debts on time, every month. It shows you can maintain a good credit standing while managing to pay multiple forms of credit.
However, don’t borrow more than you can afford. If you already have multiple forms of credit, but you can barely pay for them, a personal loan may not be the best idea.
These personal loan tips can help improve your chances of getting your loan application approved. As long as you show you’re disciplined enough when it comes to loans and managing your money, you’ll have a better chance of loan approval.
-  Debt-to-Income (DTI) Ratio (Murphy, Investopedia, 2020)
-  National Baseline Survey on Financial Inclusion (Bangko Sentral ng Pilipinas)
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