How to Boost Your Chances of Being Approved for a Loan

You have a bunch of high interest debt, and you’re trying to get a personal/debt consolidation loan for a lower interest rate (APR). You spend 10 minutes putting in all your information into a loan application, and POOF, you’re denied. Why?

Here are the 5 main things a lender looks at

1. Your credit score

Depending on the lender, most lenders require a 600+ credit score in order to qualify for a personal loan. There are lenders that go as low as 580, and some lenders that don’t even need a credit score (like Upstart). However, the lenders that typically approve lower credit also charge MUCH higher interest rates, often making it not worth it. Even if you’re truly strapped for cash (if you are, here are some cheaper options).

The biggest thing you can do to improve your credit is to work on paying down your existing debts consistently (hello, Debbie app). Here are some other relatively quick ways to increase your credit.

2. Your Debt to Income Ratio (DTI)

What is a debt to income ratio? It’s simple - it’s the amount of debt you have relative to your income; we’ll show you how to calculate this below. This is something a lot of folks forget about - even if your credit is ok (600+), but your have wayyyy too much debt, a lender won’t approve you. This is because they don’t think you will physically be able to handle all of the payments you need to make on your various debt.

Here’s how to calculate debt to income:

  1. Add up all of your required monthly debt payments, plus your monthly rent/housing payment. Even though rent isn’t a debt, it’s a required payment you make every month.
  2. Divide that number by your gross monthly income

Most lenders won’t really lend above 50% DTI, but under 40% is ideal.

Note: Lenders don’t just look at your debt to income ratio today, but they also look at what it will be after you take out the loan. The good news is, they actually replace your new monthly payment from their loan with your current monthly payment in the DTI calculation, so it shouldn’t be a big deal. BUT, if you’re using the money for a new purchase, that will add to your DTI and potentially get you declined.

To reduce your DTI, you can do a few things:

  • Continue to pay off more of your debt until you can bring your overall debt down
  • If you have other debt that’s not part of the refinance (auto loan, student loan, etc), you can ask your lender to increase your term and lower your monthly payment. Be aware, this may increase your overall interest on the loan, so calculate how much you lose here vs. the savings you will get on the personal loan.

3. Income

As with DTI, a lender wants to make sure you earn enough to pay them back. Often, income requirements bottom out at around $30-$40k/year.

4. Collections

If you have any accounts in collections, make sure you are in good standing with them. Some lenders may accept you even if you have collections, though not if it with their institution.

If you are late on any payments, make sure its not more than 2 cycles.


5. Bankruptcies

If you have any past bankruptcies that are within the last 3 years, that will likely automatically disqualify you from getting approved.

Which lenders are more lenient?

Generally, speaking, the more lenient the lender, the worse the terms. Some lenient fintech lenders include: Upstart, Upgrade, and Avant.

There is one exception, however - credit unions. Credit unions are non-profit financial institutions that offer membership. Each member is a part owner of the credit union, and get awesome benefits, like great customer service and better rates.

How do I find a credit union?

How do you find a credit union? The good news is, the Debbie app connects you to credit unions in your area that can give you an awesome offer through our Rate Crusher marketplace. You will still need to meet a good portion of the requirements above, but if you do you’ll likely get a much better rate.

How does Rate Crusher work?

Debbie’s Rate Crusher marketplace works like this:

  • It allows you to pay off and replace your existing high interest debt (think 15%+ personal loans and 20%+ APR credit cards), with a lower interest rate loan (9-15%).
  • You can design your ideal loan offer, between the APR, monthly payment, and total debt you’d like to pay off
  • Debbie matches you with credit unions in your area who will likely get you an offer
  • Once you accept, Debbie offers rewards bonuses for paying the loan down on time

Note: Replacing your high interest debt with lower interest debt, can save you thousands in interest, but that is not the end of your debt payoff journey. You also have to make sure not to rack up your credit cards again - that’s why Debbie’s money psych course is designed to help you reduce spending and use credit responsibly.

Come check it out here:

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