6 Tips to Improve Your Chances of Loan Approval

     A bank loan offers a quick solution to financial deficits. The money from a loan can be used to fulfill emergency financial needs, start and grow a business, or acquire and improve property. 

     Take note that a borrower can only apply for a bank loan in the Philippines; it’s completely up to the bank or lender to decide if a borrower can get a loan or not. That’s not to say, however, that borrowers can’t build their case. There are still steps that you can take to make it seem like it is to everyone’s advantage if the bank grants your application. This, in turn, will give you a better chance of getting approval. If you’re planning on applying for a loan from a bank, here are some of the things that you can do to maximize the possibility of eliciting a favorable response.

6 Tips to Improve Your Chances of Loan Approval
image from pexels.com

Have a Stable Source of Income

     Having a consistent source of income is a basic requirement when applying for bank loans. Keep in mind that any lender, be it a bank or a relative, loans out money with the aim of getting back that base amount plus interest in due time. A person with a small yet regular income has a better chance of slowly but surely paying off their debts compared to someone who doesn’t have stable employment but occasionally earns a hefty amount of money. You’d be hard-pressed to find a willing lender if you can’t provide proof that you have a stable source of cash flow.

Repay or Minimize Existing Debts

     Unsettled financial liabilities can damage your chances of getting approval for a new bank loan. Repaying the old loan will probably take a good chunk of your monthly income, and a prospective lender will think that this might hamper your ability to regularly and completely pay for the new loan you are applying for. This often causes the bank to turn you down. When possible, pay for your old loan in full before you apply for a new one, or at least reduce the amount of money that you still have to pay back. 

     An existing loan doesn’t mean the end of the line for everyone, though. If you have a positive debt-to-income ratio—that is, if the money you take home is still bigger than the combined amount of your new and old debt—then the old loan won’t be much of a problem. 

Understand Your Loan Options

     Loan products are often created with a specific purpose and situation in mind. Some loans are meant to be used for business needs, others can be spent at the pleasure of the borrower, and there are also loans specifically designed for purchasing vehicles or real estate property. These loan programs offer various benefits that suit the needs of the borrower, such as different repayment periods, interest rates, processing fees, and maximum loan amounts. Before submitting your application, compare your options and find the ones that are best matched with your purpose and capacity to pay. 

Build a Relationship with the Lender

     Banks want to ensure that they’re only lending money to someone who is likely to pay back their loan. Building a professional relationship with a prospective lender, such as by opening a bank account, using credit cards, and carrying out other transactions with the same financial institutions, can improve your financial credibility. Even if you choose to apply for a loan in a different bank, these efforts will not be in vain. The bottom line is that banks want to see that you’re a loyal customer with a proven record of fulfilling your financial obligations—even if these obligations are with their competitors in the financial industry. 

Have a Contingency Plan in Place

     Prepare a contingency plan for the lender. What do you plan to do if you can’t pay or if a financial emergency arises while you’re still paying your debt? For one, you can get a guarantor or someone who can fulfill your obligations with the lender if you are unable to do so. Do note, though, that some loan programs automatically require a guarantor. Your guarantor should be willing to sign a few official documents to show that they’re willing to take on this responsibility.

Carefully Fulfill the Bank’s Requirements

     Applying for a loan often requires dealing with a lot of papers. Secure a checklist of requirements at the very beginning of the process so you can make sure that you’re not missing any necessary documentation. Fill out the forms diligently, and don’t hesitate to clarify items that you’re not sure about. This way, you can avoid mistakes and deficiencies that can jeopardize your chances of getting a loan. 

     Before you apply for a loan, consider if you’ve built yourself up as someone who’s responsible for their finances. If you have doubts about how your bank sees you as a borrower, it’s not too late to carry out these steps and improve your chances of getting a loan.