How to Get Approved for a Personal Loan in 2024

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ByChristopher Boston
Reviewed byAlvin Yam, CFP
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ByChristopher Boston
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Reviewed byAlvin Yam, CFP
Edited byCasie McCoskey
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Updated: March 6, 2024

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Over the years, more and more people have been turning to personal loans to fund a variety of financial needs, from consolidating debt to financing large purchases. In fact, 23.2 million Americans had unsecured personal loans in the third quarter of 2023, according to TransUnion.

When applying for a personal loan, you typically need to meet a minimum credit score and income and debt-to-income (DTI) ratio, among other criteria, to get a loan approval. Because these eligibility requirements vary by lender, you can increase your chances of being approved by only applying with lenders who match your borrower profile.

MoneyGeek compiled a list of tips and requirements to help you prepare for the application and improve your chances of loan approval.

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How to Increase Loan Approval Chances

Securing approval for a personal loan can significantly impact your financial flexibility. By following these tips, you can enhance your loan application and boost your chances of approval.

Check and Improve Your Credit Score

Lenders often set a minimum credit score requirement to assess the risk of lending money. This score helps them determine your creditworthiness or how likely you are to repay the loan. An ideal credit score for obtaining a personal loan varies by lender. A score of 670 or higher generally falls into the good credit range, increasing your chances of approval and securing better loan terms.

To check your credit score, you can request a report from one of the three major credit reporting agencies: Equifax, Experian or TransUnion. You’re entitled to a free credit report from each of these agencies once per year, making it easy to regularly monitor your score.

After determining your current credit score, the next step is to focus on improving it, which you can do by:

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Focusing on these areas can improve your creditworthiness and increase your chances of getting approved for a personal loan. Each step contributes to a healthier credit profile, demonstrating to lenders that you can manage your finances responsibly.

Lower Your Debt-to-Income Ratio

When evaluating loan applications, lenders look into your debt-to-income (DTI) ratio to gauge your ability to manage monthly payments on top of your existing debt. A lower DTI indicates a good balance between debt and income, making you a less risky borrower. Ideally, for a personal loan, lenders look for a DTI ratio of 36% or lower, though some may accept higher ratios.

To calculate your DTI ratio, divide your total monthly debt payments by your gross monthly income. This includes payments on credit cards, loans and other financial obligations — but not living expenses like utilities and rent. Then, multiply the result by 100 to get the percentage.

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EXPERT TIP

For personal loans, lenders commonly use a DTI ratio of 43% or less as a guideline, as this indicates sufficient income capacity after existing debts to comfortably take on a new loan payment. Exceeding a 50% DTI ratio makes applicants a higher credit risk since such a high portion of income goes to debt handling each month. — Alvin Yam, CFP®

Knowing your DTI ratio paves the way for strategies to reduce it, mainly by decreasing your debt or increasing your income. To lower your debt, start by paying off high-interest debts such as credit card balances to reduce your monthly financial burden. Another effective method is consolidating multiple debts into a single loan with a lower interest rate, simplifying your payments and potentially reducing your monthly outgoings.

On the flip side, increasing your income can also positively impact your DTI ratio. Consider opportunities for career advancement that could lead to a higher salary, such as taking on more responsibility at work or seeking promotions. Exploring side hustles or part-time jobs can also provide additional streams of income.

Choose the Ideal Lender

Finding the right lender will boost your chances of loan approval, as each type of lender caters to different borrower profiles and needs.

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Identifying a lender that matches your financial situation is key to enhancing your approval chances. For instance, those looking to consolidate debt may explore lenders that excel in debt consolidation loans. Utilizing online tools to compare terms, rates and eligibility criteria across various lenders can also guide you to the right choice.

Additionally, getting prequalified can provide insight into your chances of approval without harming your credit score, allowing you to apply with confidence.

Apply for the Right Loan Amount

The size of the loan you request has a direct impact on a lender's decision, as it reflects your borrowing needs and repayment ability. Lenders evaluate the requested amount to ensure it aligns with your financial situation, including your income, debt-to-income ratio and credit score. Requesting an amount that is too high can raise concerns about your ability to repay the loan, potentially leading to a denial.

You can determine how much you need by knowing the purpose of the loan. Whether it's consolidating debt, financing a home improvement project or covering unexpected expenses, understanding exactly why you need the funds helps you calculate the precise loan amount to request.

Additionally, use a personal loan calculator to assess your financial capacity to repay the loan. These online tools can help you estimate the monthly payments for different loan amounts and terms, allowing you to adjust your request based on what you realistically can manage without straining your finances.

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The personal loan amounts you can borrow vary between lenders, from minimums as low as $600 to average maximums of $50,000. Some of the most competitive lenders may offer higher maximums of up to $100,000 based on an applicant's annual income, credit score and repayment history. Maximum amounts also depend on the lender's unique policies.

According to TransUnion, the average personal loan balance for new originations in the fourth quarter of 2022 was $8,000. — Alvin Yam, CFP®

Consider a Co-Signer

Considering a co-signer for your personal loan application can play a pivotal role in improving your eligibility, particularly if your credit profile or income doesn't fully align with a lender's criteria. By agreeing to share the responsibility for the loan, a co-signer provides lenders with an added layer of assurance. This often leads to a higher likelihood of approval and may result in more favorable loan conditions, such as reduced interest rates.

When choosing the right co-signer, consider the following:

  • Strong Credit Score: Choose someone with a good to excellent credit score. A co-signer with a strong credit history reassures lenders of the loan's repayment, increasing your chances of approval.

  • Stable Income: Ensure your co-signer has a stable and sufficient income. This indicates the financial capacity to cover the loan payments if you're unable to, further securing the loan.

  • Trustworthy Relationship: Opt for a co-signer with whom you have a trusting relationship, like a close family member or friend. This mutual trust is helpful as you'll share financial responsibilities that can affect your financial future.

Remember that there's a significant responsibility placed on the co-signer's shoulders, as any failure to keep up with payments could negatively impact their credit and financial standing, potentially putting personal relationships at risk.

Document Requirements for Personal Loans

Lenders ask for various documents to assess your financial health and repayment capability during the application process. A clear understanding of these requirements streamlines the application process and increases your chances of loan approval by showcasing your reliability as a borrower.

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How to Apply for a Personal Loan

Knowing the steps to the personal loan application process is beneficial because it prepares you for a smooth and efficient experience. Being informed helps minimize errors and increases the likelihood of approval by ensuring you meet all the lender's requirements from the start.

1
Evaluate Your Needs and Financial Situation

Before applying, determine the exact amount you need and the purpose of the loan to avoid overborrowing. Analyze your financial health, including your income, monthly expenses and existing debt obligations. Remember to also check your credit score, as it will significantly influence your loan terms and interest rates.

2
Compare Lenders

Not all lenders offer the same terms, interest rates or fees, so shopping around is worthwhile. Compare offers from multiple lenders, including banks, credit unions and online lenders, to find the best fit for your financial situation.

3
Prequalify for Loans

Many lenders offer a prequalification process that estimates the loan amount, rates and terms you might qualify for without affecting your credit score. This step can help you gauge your chances of approval and compare potential loan offers more accurately.

4
Gather Necessary Documentation

Lenders will require various documents, including proof of income, identity and residence. Collecting these documents beforehand can expedite the application process.

5
Submit Your Application

Once you've chosen a lender and prepared your documents, complete and submit your loan application. Be sure to fill out the application accurately and include all requested information to avoid delays in processing.

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WHAT IF YOUR APPLICATION GETS DENIED?

If your lender denies your application, you can take the following steps:

  • Ask your lender about the reason you were denied: Your application may have been denied for a variety of reasons, like low credit score, insufficient income or incomplete application. Knowing why your lender rejected your application will allow you to make changes to get approved in the future.

  • Check for any modifications you can make to your application: Ask the lender if tweaking your application by lowering the loan amount or shortening the repayment term will lead to application approval. Sometimes, making simple modifications can help your case.

  • Make sure to avoid predatory lending options: Exploitative providers typically don’t disclose fees or costs, are aggressive in their pursuit and don’t check your credit score. We also advise against getting payday loans. These loans have extremely high-interest rates of up to 400% and very short repayment terms.

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EXPERT TIP

If you've been denied a personal loan, waiting at least 30 days before reapplying is generally advisable. You can use this time to improve credit management by paying down balances and waiting one to three months to see an increase in your credit score.

However, you may be able to submit a reconsideration of terms request to your lender immediately. This asks the lender to take another look at your application. For denials due to excessive inquiries, wait six months for those inquiries to fade from your credit report before applying again. — Alvin Yam, CFP®

FAQ About Personal Loans

We addressed some commonly asked questions about personal loans to help you learn more about this type of loan and increase your chances of getting approved.

What can I use as collateral for a personal loan?
Can I still get a personal loan without proof of income?
What questions are asked when applying for a personal loan?
How do I compare personal loan offers?
What are the disadvantages of a personal loan?
Is a personal loan taxable?

About Christopher Boston


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Christopher (Croix) Boston was the Head of Loans content at MoneyGeek, with over five years of experience researching higher education, mortgage and personal loans.

Boston has a bachelor's degree from the Seattle Pacific University. They pride themselves in using their skills and experience to create quality content that helps people save and spend efficiently.


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The content on this page is accurate as of the posting/last updated date; however, some of the rates mentioned may have changed. We recommend visiting the lender's website for the most up-to-date information available.

Editorial Disclosure: Opinions, reviews, analyses and recommendations are the author’s alone and have not been reviewed, endorsed or approved by any bank, lender or other entity. Learn more about our editorial policies and expert editorial team.