You’re waist-deep in credit card debt and sinking fast. You’re considering debt consolidation loans but aren’t certain you qualify. Here’s how to be sure your loan application will be approved.
What’s A Debt Consolidation Loan?
Debt consolidation is a type of personal loan that combines high-interest debts and allows for a single, fixed monthly payment that ideally carries a lower interest rate than what you’re now paying.
If you have multiple credit cards with high interest rates, interest charges can pile up and make erasing your balances challenging. Meanwhile, interest on debt consolidation loans isn’t compounded, meaning there’s no interest charged on the interest. Thus, the rate usually stays constant for the life of the loan.
Where Can I Get One?
Credit unions, banks, and online lenders do consolidation loans. Some debt consolidation firms offer immediate online prequalification and approval. In other words, yes debt consolidation loan guaranteed approval is a thing, though it might carry some caveats you’ll do better to avoid. Either way, the process of prequalification can make comparing offers easy since lenders estimate your terms through a soft credit check that won’t affect your score.
Since you don’t need collateral for such loans, you must m\eet the lender’s credit and debt-to-income ratio requirements. The better your score, the better your chances of getting a low-interest rate.
How To Boost Your Chances
There is no concrete formula for gaining approval of a personal loan application since requirements such as credit score and income vary by lender. Some online lenders also consider info other than your credit score, including your education level and employment history, annual income, and the number of assets you own. Another important criteria banks consider while approving your loan is your EMI to income ratio, where if the EMI exceeds 50% of your monthly salary, the chances of getting approval reduces.
However, all loan companies want to get repaid on time, so they will only approve those who meet their requirements.
Here’s how to increase your odds:
Get Your Credit Together
Your credit score is a top consideration for lenders. Get your credit report and examine it for errors that may be keeping your score down. Such errors may include incorrect accounts or credit limits, and closed accounts reported as open.
You should also be current with bill payments. Try to pay more than the minimum when you can. Doing so will help your payment history and credit utilization ratio – the percentage of your available credit that you’re using. Your payment history and credit utilization comprise 65 percent of your FICO score.
You can also ask for a credit limit increase, although you have a better shot if your income has increased since you first got your credit card and you’ve been on time with payments. This strategy is somewhat risky, however, since it requires a hard credit pull.
Rebalance Your Debts And Income
Because lenders want to know your annual income, consider getting a part-time gig or side hustle to supplement your regular employment. You should also try hard to pay down existing debt. Doing so, and increasing your income, reduces your debt-to-income ratio. This will demonstrate to lenders that your existing debt is under control.
Ask Only For What You Need
Seeking more cash than you need to meet your financial goal can be viewed as risky by lenders. A bigger loan also puts a squeeze on your budget, since higher loan payments affect your ability to meet other financial obligations such as mortgage payments or student loans.
Consider A Co-Signer
If you just have “fair” credit, adding a co-signer with a better score and income can give you a better chance of approval. Don’t do this lightly, however. Your benefactor will be on the hook for the loan If you default.
Find The Best Lender For You
You can go online for most lenders’ credit score and income requirements and try to prequalify for financing. Doing so will not hurt your score, since it only triggers a soft credit pull. Ultimately, the best consolidation loan option is the one that has terms that fit into your budget.
So, yes, it is somewhat hard to be sure your loan application will be approved. However, you now know how to increase your chances. Take these steps and put yourself on a path to financial recovery.