Connect with us

Bad Credit

How to boost your chance of getting personal loan approval

Published

on

Do these five things before you apply. (iStock)

The total number of personal loans Americans borrowed reached a high of $162 billion during the first quarter of 2020, according to TransUnion. However, the growth rate toward the end of the quarter was also the slowest in more than two years, the credit reporting agency claimed.

Getting a personal loan approval could be harder due to the coronavirus pandemic — as lenders get more conservative and raise the credit score requirements on unsecured loans. Credible can help determine if you’d be a good candidate for a personal loan. Just enter some information into Credible’s free online tools and discover what kind of rates you qualify for today.

But before you officially start the personal loan application process, you may want to take these five steps to boost your chance of getting approved.

1. Go through your credit report

Lenders look at borrowers’ credit scores to help them assess their risk levels. It’s hard to get approved for a loan with bad credit, so you’ll want to check your credit score and see where you stand before applying. If you have bad credit, don’t worry, there are several ways you can boost your credit score to eventually secure approval.

If you already have a high credit score or are confident in your credit history, then you can enter your desired personal loan amount into Credible’s free tools and start the application process.

HOW TO GET A FREE CREDIT REPORT

Unfortunately, errors in your credit report could lower your credit score. A study from the Federal Trade Commission found that one in five consumers have a mistake on their report that could result in unfavorable loan terms.

You’re entitled to a free credit report from the three credit bureaus each year. After obtaining it, look for errors like missed payments or accounts you didn’t open. If you find a mistake or negative items on your credit report, dispute it with the credit bureau and reach out to the company that generated the report to fix the error.

2. Look at your ratios

In addition to your credit history, lenders will look at your debt-to-income ratio, which is the amount of debt you have compared to your income. If you have a lower percentage, then you likely have a manageable debt level — an important factor when applying for a personal loan.

To see where you currently stand, turn to Credible. Credible can help you compare multiple lenders at once and help you find the best deals depending on your financial situation.

HOW TO CALCULATE YOUR DEBT-TO-INCOME RATIO

Before you apply, do the math, adding up your loan payments, such as student or vehicle notes. Monthly expenses like rent or utilities aren’t included, and a ratio below 40% is preferred.

For example, if you have an income of $2,000 each month and a student loan payment of $400 and a car loan that’s $325, your debt-to-income ratio is 36.25%. But if you also have credit card debt with a monthly minimum payment of $150, your ratio is 43.75%, which could make approval challenging. Before you apply, pay down debt to reduce your ratio.

Another number that lenders consider is your debt utilization ratio, which is the amount of revolving credit you’ve used compared to how much is available. A number of less than 30% is preferred. To improve this ratio, you could request an increase in your credit limit. However, make sure the creditor doesn’t require a hard inquiry on your credit, which could backfire and lower your credit score.

3. Determine how much you need to borrow

It can be tempting to apply for more than you need, just in case. But requesting too much money can be a red flag for lenders. Before you enter a loan amount, consider your other financial obligations and how the new loan would impact your monthly budget.

It can help to use a personal loan calculator like this one from Credible to determine your monthly payment and how it would impact your cash flow. Once you determine your monthly payments and the impact on your savings account, then use Credible to compare rates.

9 OF THE BEST PERSONAL LOANS IN 2020

A larger loan could put a strain on your finances, causing a lender to potentially decline your application. A personal loan calculator can also help you estimate how much you’d qualify for.

4. Get a cosigner

If your credit score is fair or if you are just starting out and haven’t yet established a credit history, you can increase your chances of approval if you have a cosigner who has good or excellent credit. Lenders will be more likely to give you money because, if you cannot pay for any reason, the cosigner has agreed to assume responsibility.

A cosigner can be a family member or friend, but you’ll want to tread lightly into this type of arrangement. If you think there’s any chance that you may lose your job or become unable to make the monthly payments, you could permanently damage your relationship with the cosigner by defaulting. And if they become unable to pay, their credit could suffer, as well.

HOW TO FIND A COSIGNER FOR A LOAN

5. Shop and compare lenders

Finally, look for a lender where you have the best chance for approval. Many will disclose their requirements on their website, including a minimum credit score or annual income. When you find a lender that fits your qualifications and offers the best rates, you can move forward with your application instead of wasting your time.

Visit Credible to explore your options. You can compare rates and lenders all on one page.

DOCUMENTS REQUIRED TO APPLY FOR A PERSONAL LOAN

Ultimately, the best personal loan is one that doesn’t hurt your financial wellbeing. Make sure you can handle the monthly payment without straining your budget. By doing the groundwork before you fill out the personal loan application, you can get the best rate from lenders.

Source link

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Bad Credit

Loans Bad Credit Online – Loans Bad Credit Online – Reforming India’s deposit insurance scheme | Fintech Zoom | Fintech Zoom

Published

on

Loans Bad Credit Online – Loans Bad Credit Online – Reforming India’s deposit insurance scheme | Fintech Zoom

Loans Bad Credit Online – Loans Bad Credit Online – Reforming India’s deposit insurance scheme | Fintech Zoom



Source link

Continue Reading

Bad Credit

Loans Bad Credit Online – Reforming India’s deposit insurance scheme | Fintech Zoom

Published

on

The government’s incentive to step in and bail out depositors when banks fail is clear from past experience.

By Anusha Chari & Amiyatosh Purnanandam

The failure of the Punjab and Maharashtra Co-operative Bank (PMC) in September 2019 shone a light on the limitations of India’s deposit insurance system. With over Rs 11,000 crore in deposits, PMC bank was one of the largest co-op banks. That the Deposit Insurance and Credit Guarantee Corporation (DICGC) insurance covered depositors, provided little solace when the realisation hit that the insurance amounted to a mere Rs 1 lakh per deposit.

The predicament of PMC depositors is, unfortunately, not an anomaly. Several bank failures over the years have severely strained RBI and central government resources. While co-operative banks account for a predominant share of failures, other prime examples include the Global Trust Bank and Yes Bank failures. These failures entail a direct cost to the taxpayer—the DICGC payment or a government bailout. More importantly, bank failures impose long-term indirect costs. They erode depositor confidence and threaten financial stability, presenting an urgent need for deposit insurance reform in the country.

A sound deposit insurance system requires balancing two opposing forces: maintaining depositor confidence while minimising deposit insurance’s direct and indirect costs. At one extreme, the regulator can insure all the deposits, which will undoubtedly strengthen depositor confidence. But such a system would be very expensive.

A bank with full deposit insurance has minimal incentive to be prudent while making loans. Taxpayers bear the losses in the eventuality that risky loans go bad. Depositors also have little incentive to be careful. They can simply make deposits in the banks offering high interest rates regardless of the risks these banks take on the lending side.

Boosting depositor confidence and reducing direct and indirect costs require careful structuring of both the quantity and pricing of deposit insurance. Some relatively quick and straightforward fixes could help alleviate the public’s mistrust while improving the deposit insurance framework’s efficiency.

India has made some progress on this front over the last couple of years. First, the insurance limit increased to `5 lakh in 2020. Second, the 2021 Union Budget amended the DICGC Act of 1961, allowing the immediate withdrawal of insured deposits without waiting for complete resolution. These are very welcome moves. Several additional steps could bring India’s deposit insurance system in line with best practices around the world. Even with the increased coverage limit, India remains an outlier, as the accompanying graphic shows.

The government’s incentive to step in and bail out depositors when banks fail is clear from past experience. However, these ex-post bailouts are costly. The bailout process also tends to be long, complicated, and uncertain, further eroding depositor confidence in the banking system. A better alternative would be to increase the deposit insurance limit substantially and, at the same time, charge the insured banks a risk-based premium for this insurance. Under the current flat-fee based system, the SBI pays144 the same premium to the DICGC—12 paise per 100 rupees of insured deposits—as does any other bank!

A risk-based approach will achieve two objectives. First, it will ensure that the deposit insurance fund of the DICGC has sufficient funds to make quick and timely repayments to depositors. Second, the risk-based premia will curb excessive risk-taking by banks, given that they will be required to pay a higher cost for taking on risk.

India is not alone in trying to address the issue of improving the efficiency of deposit insurance. The Federal Deposit Insurance Corporation (FDIC) recognizes that the regulatory framework governing deposit insurance is far from perfect and the United States is moving towards risk-based premia. The concept is similar to pricing car insurance premia according to the risk profile of the driver. The FDIC computes deposit insurance premia based on factors such as the bank’s capital position, asset quality, earnings, liquidity positions, and the types of deposits.

In India, too, banks can be placed into buckets or tiers along these different dimensions. The deposit premium can depend on these factors. It is easy to see that a bank with a worsening capital position and a high NPA ratio should pay a higher deposit insurance premium than a well-capitalized bank with a healthy lending portfolio. The idea is not dissimilar to a risky driver paying more for car insurance than a safe driver.

Risk-sensitive pricing can go hand-in-hand with the increase in the insured deposit coverage limits bringing India in line with its emerging market peers. In a credit-hungry country like India, these moves would build depositor confidence, possibly increasing the volume of deposits and achieving the happy result of the banking system channeling more savings to productive use.

Chari is professor of economics and finance, and director of the Modern Indian Studies Initiative, University of North Carolina at Chapel Hill and Purnanandam is the Michael Stark Professor of Finance at the Ross School of Business, University of Michigan

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.



Source link

Continue Reading

Bad Credit

5 Signs You’re Not Ready to Own a Home, According to a CFP

Published

on

If you buy through our links, we may earn money from affiliate partners. Learn more.

The housing market has boomed over the last year, despite a global pandemic and millions of Americans struggling to make ends meet. 

Many people are spending less on entertainment, clothing, travel, and other discretionary purchases during COVID. Federal student loan borrowers have seen temporary relief from their loan payments. These expenses will most likely rise again after the pandemic, and many people who committed to a new home with a large mortgage will struggle to keep up. 

I often speak with clients and prospective clients who want to buy a home before they have a strong financial foundation. Buying a home is not only one of the largest purchases you’ll make in your lifetime, but it’s also a huge commitment that’s extremely hard to undo if you have buyer’s remorse

It’s important to make a thoughtful, informed decision when it comes to a home purchase. Before you take the plunge into homeownership, check for these signs that you’re not quite ready to buy. 

1. You have credit card debt

Credit card debt can be a drain on your monthly budget, and when combined with student loans and a car loan, it can lead to high levels of stress. 

Generally, more debt means higher fixed expenses and little opportunity to save for long-term financial goals. Your financial situation will only get worse with the addition of a mortgage. I always recommend that clients be free of credit card or other high-interest debt before they consider buying a home. 

To rid yourself of credit card debt, take some time to get a good handle on your cash flow. Take an inventory of your spending over the last six to 12 months and see where you can cut back. From there, develop a realistic budget that includes aggressive payments to your credit cards. 

There are several strategies to help you knock out credit card debt fast. Regardless of the method you choose, stick with the plan and track your progress along the way. Once you pay off your credit cards, you can allocate your debt payments to savings, which can help you avoid this situation in the future.  

2. You have bad credit

Bad credit is not only a sign that you may not be ready to take on a mortgage, it can also signal a high risk to

mortgage lenders
. A high-risk status results in higher interest rates and more strict requirements to qualify for a loan. A mortgage is one of the largest loans you’ll take out in your lifetime, and if you get behind on payments, you could lose your home. 

Just as with credit card debt, bad credit could be a result of past financial mistakes. Dedicating the time to repair bad credit and improve your credit score will help you beyond purchasing your dream home. 

Start by pulling a recent credit report from each of the three credit bureaus so you can review it for errors. Dispute any errors, address past-due accounts, and bring your overall debt balances down. It’s helpful to learn what has a negative effect on your credit score so you can avoid these mistakes in the future. 

3. You don’t have an emergency fund (or an inadequate one)

If you’re unable to save for a rainy day, you probably don’t have enough money to buy a house. Owning a home is a big responsibility, and unexpected expenses pop up all the time. In addition, you could lose your job, have a medical emergency, or another unexpected expense unrelated to the home. Maintaining an emergency fund is a good sign that you have discipline and are prepared for the responsibility of homeownership.

Many financial experts recommend saving at least six months of living expenses in an emergency fund. If you have variable income, own a business, or own a house, you should save more. To build an emergency fund, set money aside from each paycheck and automate transfers to make the process easier. Give your emergency fund a boost when you receive lump sums such as bonuses or tax refunds. Start by saving one month of living expenses and build from there. 

4. You don’t have separate savings for your home

I always advise clients to set aside savings for a home in addition to an emergency fund. It’s a bad idea to start homeownership with no savings. Whether you have unexpected expenses related or unrelated to the home, having no emergency fund after a home purchase will lead to unnecessary stress — and possibly more debt. 

When purchasing a home, you’re responsible for a down payment and closing costs. While a 20% down payment is ideal to avoid private mortgage insurance, a down payment of at least 3.5% is typically required. Closing costs can range from 2 to 5% of the home’s value. 

Also, you will have moving costs, costs to spruce up your new place (like new furniture or light cosmetic updates), and any initial maintenance and repairs. Be sure to budget for these items to know how much to save on top of your emergency fund. It doesn’t hurt to boost your emergency fund, too, in preparation for homeownership. 

5. You have a low savings rate

It’s much easier to develop good savings habits before you have a lot of responsibilities. To get on track for financial independence, several studies show that you should save at least 15% of your income. The longer you wait, the more you’ll need to save. 

If your savings rate is low before you purchase a home, it will most likely worsen after becoming a homeowner. Even if your mortgage is similar to your rent, ongoing maintenance and repairs, higher utilities, and homeowners association fees can wreak havoc on your budget. 

Take a look at your current savings rate and see if you’re on track for financial independence. If you’re saving less than 15 to 20% of your income, work to improve your savings rate before you consider buying a home. A strong savings habit can help you build your home savings fund faster and ensure that a home purchase doesn’t impede your long-term financial goals. Finally, understand how much house you can afford so you can avoid being house poor. 

Buying a home can be rewarding, and when done the right way, it’s a way to build wealth. Before you decide to buy a home, it’s important to understand your numbers and ensure that you’re ready for the commitment. Without preparation, your dream home could be detrimental to your long-term financial goals.

Chloe A. Moore, CFP, is the founder of Financial Staples, a virtual, fee-only financial planning firm based in Atlanta, Georgia and serving clients nationwide.

Source link

Continue Reading

Trending