With more than 21 million outstanding personal loans in the United States, personal loans are a fairly common form of debt to carry. Reasons people apply for personal loans include debt consolidation, home improvements, a major or unexpected expense, medical bills, and moving.
But loan approval isn’t guaranteed, and stumbling blocks like a poor credit score or high debt-to-income ratio can get in your way. Find out how to maximize your chances of loan approval below.
In this piece, we will discuss the following: —
- What is the easiest loan to get approved for?
- What are the four Cs of loan approval?
- How can you make sure your loan is approved?
- Loan approval FAQs
What Is the Easiest Loan to Get Approved For?
One way to increase the chance you’re approved for a loan is to apply for one that’s easy to get approved for. Lenders like Wise Loan, for example, offer loans that don’t require good credit, giving people a chance to get the money they need while building credit for the future.
The easiest loan to get approved for is the one you’re qualified for. Before you start applying for loans, make sure you understand the four Cs, known as capacity, capital, collateral, and credit, of loan approval to understand whether you are qualified for certain options. At Wise Loan, we require the applicant to have a checking account with direct deposit.
What Are the Four Cs of Loan Approval?
The four Cs of loan approval are the factors many lenders consider when evaluating you for a loan. They are:
- Capacity. Lenders want to know you have the capacity to pay back a loan. This is why many loans require you to provide documentation of your income. An applicant must be able to show verifiable income. Insufficient income can cause a loan application to be denied.
- Capital. Some lenders look at how much cash you have on hand. If you have a savings account to cover rainy days, you’re more likely to be able to stick to your payment arrangements with a lender if something happens to your income.
- Collateral. This refers to something you put up to secure the loan. Secured loans may be easier to get because the creditor has the option to take the security and sell it to recoup losses if you fail to make payments. One of the most common examples of a collateral-based loan is an auto loan: the vehicle secures the loan and can be repossessed if you don’t pay.
- Credit. Many lenders check your credit to find out if you have a history of managing debt wisely and paying your bills on time.
All of these factors come into play with large loans, such as those associated with mortgages. When you’re applying for a smaller personal loan, each lender has its own policies and may not look as closely into all four Cs.
5 Steps to Make Sure Your Loan Is Approved
Taking a few proactive steps to put your four Cs and other factors forward before applying for a loan can improve your chances of success. Follow the tips below to do so.
1. Apply for the right loan.
Don’t apply for loans that you know you won’t be able to get. Each time a lender checks your credit for the purpose of evaluating you for a loan, a hard inquiry goes on your report. Stack up enough of those and your score drops. It also makes you look desperate for money to other lenders — which is not a look you want to wear when applying for loans.
Instead, research loan options before you apply. Find out what type of credit and income may be required. And don’t apply for loans that would have payments you know you can’t afford.
2. Ensure your debt-to-income ratio is good.
The top reason people get denied for a mortgage loan isn’t poor credit. It’s a bad debt-to-income ratio, or DTI. This is the ratio of how much you owe in debts monthly to how much income you have each month.
DTI can also be a factor in personal loan approval. If you make $3,000 a month, for example, and you owe $2,200 in debts every month, that’s an extremely high DTI. That only leaves $800 for living expenses and other bills, such as utilities. Lenders aren’t likely to approve you for a loan in this situation because you don’t have enough income left over to handle more debt.
3. Work to improve your credit.
Credit scores can be a factor in loan approvals. Work to improve your score by:
- Making all your existing payments on time
- Paying down debt, especially on revolving accounts like credit cards
- Reviewing your reports for potential errors and disputing them
4. Provide all documentation requested.
Follow all instructions when applying for a loan and provide any information or documentation requested. If you don’t provide the required documents, your loan could be denied or you could delay an approval.
Even simple personal loans like those available at Wise Loan may require proof of ID, a good address and a checking account owned by the applicant (so you can receive an electronic deposit to fund your loan).
5. Be available to answer questions.
Don’t apply and then ghost. Check your email and text messages in the hours and days after applying for a loan. The lender may reach out to clarify information or ask for additional documentation so they can approve your loan.
If you’re ready to apply for a loan that’s easy to qualify for and helps you build credit for the future, start with Wise Loan. Apply today and, if you’re approved, you could get your funds in a matter of minutes.
Loan Approval FAQs
Can an approved loan be denied?
In some cases, a loan you thought you were approved for can get denied. This is most common in mortgage situations, where you may have been preapproved for a mortgage loan. However, once full underwriting occurs, the lender may decide not to go through with the loan after all, often due to changes with your credit, debt or income that occurred between preapproval and final closing.
In rare cases, an auto loan you were approved for may be denied. Again, this is usually because of a change in the details of your loan or because the lender couldn’t verify certain facts you provided when you applied.
If you’re approved for a personal loan and the money is funded (which means you received it) you can’t typically be denied after the fact.
How can I instantly borrow money?
Wise Loan provides an instant funding option for its online loans. Instant funding is an option for those that apply and are approved before 5:30 pm CT and who have a Visa or Mastercard debit card associated with their checking account. With instant funding, you can receive funds from the loan the same day the loan is approved. However, how fast you receive funds depends on your financial institution’s processes. If you’re approved, you can get money in your bank account within minutes. This process requires that you have a Visa or Mastercard debit card associated with your bank account, as the instant funds are transferred via the card networks.
Who decides if a loan is approved?
Lenders make the ultimate decision about whether you’re approved for a loan. In some cases, automated computing systems handle the first round of evaluations and may deny your loan based on programmed requirements. If a lender requires a 600 credit score, for example, computer systems may automatically reject anyone with a lower score.
In most cases, a person looks at your application too. They may be an underwriter or simply staff trained to evaluate your documentation against the lender’s loan requirements.
The recommendations contained in this article are designed for informational purposes only. Essential Lending DBA Wise Loan does not guarantee the accuracy of the information provided in this article; is not responsible for any errors, omissions, or misrepresentations; and is not responsible for the consequences of any decisions or actions taken as a result of the information provided above.