Getting approved for a personal loan involves completing an application, providing the relevant documentation, and being approved by a lender’s underwriters. Lenders like Service Loan South consider various factors, including credit score and income, to approve the release of funds. But if you fully understand what the approval process entails, you can improve your chances of success in obtaining a new loan.
Many borrowers face challenges when trying to get approved for a loan due to their low credit scores or insufficient income. In this article, our loan experts share details about how to get approved for a personal loan and increase your loan approval odds for greater financial flexibility in 2025.
Key Takeaways:
- Understand the credit score requirements for personal loans
- The importance of financial stability and debt-to-income ratio
- How to choose the right lender for your loan
- The role of collateral in securing approval
- Factors that could negatively impact loan approval
- Steps to take if you can’t get approved for a personal loan
Understanding the Credit Score Requirements for Personal Loan Approval
Can you get a personal loan with a low credit score? Also, is there a strategy for how to get approved for a loan with bad credit? Let’s look at the role of your credit score and how to improve your score and get approved even if you have less-than-perfect credit.
Credit Score and Its Role in Loan Approval
Your credit score influences a lender's decision-making process because it offers a glimpse into how likely you will be able to repay a loan over time. >Yes, your credit score is just a number, and your financial picture is much broader than that. However, credit score provides a baseline for lenders to rate you as a borrower because they want evidence that you pay your bills and repay loans on time. A credit score of over 640 is more likely to show lenders that you are a reliable borrower and not too risky to lend money to.
How to Get Approved for a Personal Loan with Bad Credit
However, even if you have a credit score of less than 640, there is still hope that you can qualify for a personal loan. People with lower credit scores can increase their chances of getting approved for a personal loan by securing a co-signer or applying for a smaller loan. There are also specific lenders specializing in bad credit loans to consider if you are worried about getting approved for a loan with bad credit.
How to Improve Your Credit Score Before Applying
If you know in advance that you want to apply for a personal loan, there are practical and actionable steps you can take to boost your loan approval odds. For example, it can help your credit score to pay down existing debt or fix errors on your credit report. Review your credit report, ensure that you make all payments on time, and avoid opening or closing any accounts at this time. You could also request a credit limit increase on your credit cards to lower your credit utilization ratio, potentially making yourself more attractive to lenders.
Maintaining Financial Stability and a Healthy Debt-to-Income Ratio
Getting approved for a personal loan may also require looking at your debt-to-income ratio and improving it for better overall financial health.
Debt-to-Income Ratio (DTI) and How It Affects Approval
DTI is a calculation of your monthly debt payments compared to your monthly income. It’s relevant to loan approval odds because lenders look at it to assess how much they think you can afford to borrow. The standard that lenders typically look for is a DTI of less than 36 percent. However, depending on your other financial details, lenders may be willing to accept a DTI of up to 50 percent.
Tips for Improving Your DTI
Fortunately, there are practical ways to improve your DTI when you are concerned about how to get approved for a personal loan. For example, you could pay off existing debt or pick up a side gig or two to increase your overall income.
Choosing the Right Lender for Your Personal Loan
The process of how to get approved for a personal loan varies based on the lender you choose. Let's explore the various lenders' options to help you choose the best one.
Can Your Bank Impact Loan Approval?
Does your bank impact loan approval? Applying for a loan through your current bank rather than another lender can impact approval chances. You may have a better chance of getting approved since you already have an established relationship with your bank and a history of handling finances with them. However, if you choose your own bank as a lender, you could face less competitive rates and fewer loan options compared to specialized lenders with more choices.
Exploring Online Lenders and Credit Unions
Alternatively, you might reach out to an online lender or credit union for a loan rather than a traditional bank. Different institutions have different approval and loan terms, which could benefit or challenge your financial situation. Consider prequalifying with multiple lenders to compare offers without affecting your credit score. Also, look for lenders that offer discounts to make your loan more affordable.
How to Research Lender Requirements
Review lenders' approval criteria and compare interest rates to find the best deal on a loan. You'll also want to compare repayment terms before applying and getting approved for a personal loan.
The Role of Collateral in Securing Personal Loan Approval
If you can’t get approved for a personal loan, it might help to put up a piece of collateral to entice a lender to work with you.
Secured vs. Unsecured Loans
A secured loan requires you to provide collateral, such as a vehicle. Meanwhile, unsecured loans don't require any collateral. If you default on your loan, the lender has the right to seize your collateral. But if you can commit to making timely payments, you could improve your loan approval odds with a secured loan.
Collateral to secure a loan could be a car, home equity, business inventory, or piece of equipment. Collateral can impact loan terms by letting borrowers secure larger loan amounts, more extended repayment periods, and lower interest rates. This is because collateral reduces the lender's risk by providing an asset to seize in the event of a default.
Factors That Could Negatively Impact Personal Loan Approval
Getting approved for a personal loan is a challenge for many people. Here are some factors that could make the process more difficult for you.
Common Red Flags for Lenders
- A history of missed payments
- Too many recent loan inquiries
- Low income or employment gaps
- High debt-to-income ration
- Data discrepancies in the application
How Long Does Personal Loan Approval Take?
Many people wonder, “How long does personal loan approval take?” whenever they need funds urgently. Many online lenders offer same-day approval, but a complicated credit history could delay the process. A too-quick loan approval process may signal red flags that a lender isn’t reputable, while a longer approval process can indicate more thorough vetting. Traditional banks often take longer to approve loans than online lenders, but perhaps not if you already bank with the institution.
Can’t Get Approved for a Personal Loan? Here's What to Do
If you’ve done everything you can and still can’t get approved for a personal loan, don’t despair. If you haven’t already done so, now is the time to review your credit report for any errors that might be hindering your opportunities. You can also take steps to improve your financial situation and consider alternative lending options, such as a secured loan backed by collateral or peer-to-peer lending.
Steps to Take If You Can't Get Approved for a Personal Loan
Here are some ideas for how to get approved for a loan with bad credit or if you are otherwise rejected for funding.
Understanding the Rejection
Rather than taking offense to a loan rejection personally, take a step back to assess the situation objectively. Also, take the time to understand why you were rejected and address the root causes. Targeting those areas of your financial health before trying to reapply for a loan is crucial.
Alternatives to Personal Loans
Fortunately, getting approved for a personal loan isn’t the only way to get money when you need funds quickly. Other options include seeking a new line of credit and applying for a new credit card. You might also consider borrowing money from family or friends or looking into peer-to-peer lending through an online platform that connects individuals and investors.
When to Reapply for a Loan
To improve your chances of getting approved for a personal loan in the future, it is wise to wait a little while after receiving a loan rejection. It’s generally best to wait at least 30 days before applying again to minimize the impact of multiple hard credit inquiries over a short period. During this month or longer, you can work to strengthen your financial position by budgeting your money, spending mindfully, and keeping up with ongoing payments.
Can I Get Approved for a Personal Loan?
We hope you now understand how to get approved for a personal loan and the various challenges you can overcome to boost your loan approval odds.
As discussed in this article, you are more likely to be approved for a loan if you improve your credit score, choose a reputable lender, and maintain financial stability. You might also consider putting up a piece of collateral to improve your chances of getting approved for a personal loan and work to minimize factors that could harm your approval odds.
Although the process of applying for a personal loan might seem overwhelming at first, learning about the process and following the proper steps can bring you peace of mind and the prompt funding needed. We recommend taking small, actionable steps to start the process and significantly improve your chances of loan approval.
In each of our loan office locations, our staff encourages you to continue researching the lending process and improving your financial standing to improve your chances of securing a personal loan. You can learn more about if a personal loan is right for you and get helpful application tips on our website.
We are here for you throughout the personal loan process to walk you through your options and provide tailored advice about the loan opportunities we offer.
Please visit or call a local branch near you or apply online today if you’re ready to get started.
