Are you looking to have a small loan approved? Before you do, there are a few things that you can do to improve the chance of your small loan getting approved. Small loans can help you fund huge events such as a wedding, birthday parties or a dream vacation.
You can also use a small loan to meet basic expenses, such as groceries, utility bills payments and so on. In fact, it is one of the most practical ways to get money without putting up any collateral. That means your car; house or pricey equipment will be safe from being repossessed if you default. When used correctly, small loans can help you save more money than credit cards and pawnshops. But, watch out for unscrupulous lenders who charge hefty interests and fees.
Below are tips that will improve your chances of getting a small loan approved with better terms
Determine your borrowing needs
One of the biggest challenges for borrowers to get a small loan approved is making sure they have access to the right loan product. To do this it is important to consider the amount you need, and your current financial situation. Even individuals with established income may also need finance for daily expenses and emergency needs. To ensure you are getting the right loan, it is essential to estimate your financial needs and assess your ability to repay the borrowed money.
Here are some factors to evaluate before you aim to get a small loan approved:
What do you need the money for? Generally speaking, those who opt for a small loan need the money for two reasons: emergency expense and additional working capital. Employed individuals usually wait for several weeks before they receive their salary. So, when a need arises they opt for quick cash loans, especially when they don’t want to touch their credit card anymore. Others may have already exhausted their credit card limit.
Are you starting a new business?
If you are looking for a small loan to quickly start-up and run your business, take time to calculate your anticipated expenses. These may include license fees, inventory, and operating expenses.
Assess your current financial position
Where do you stand financially? If you are in a weak financial position, you may borrow a huge sum of money to cover all your urgent expenses. But, at the same time, it is important to assess your capacity to pay. If you are not expecting to receive a huge amount of money to repay the small loan, how can you possibly pay it back within the loan period? In such a case, you may opt for a longer-term loan to give you more time to recover financially. Another good option is to use some of the small loan proceeds to augment your income.
Determine the stage of your life
Are you in a transitional stage? Have you recently split with your partner? Do you have a child on the way? Are you still studying? Whilst starting a new business is always a risk, it is important to assess your current stage in life. Make sure that you anticipate what your financial state may be like during the loan period.
Urgency of financing
Do you need a small loan approved because you are under pressure? Don’t make the mistake of applying for a loan chaotically because you are in financial trouble. A wiser option would be doing some research on available financing options and reputable lenders in your area. This will ensure you secure an affordable loan with easy repayment conditions.
Go over your credit file to make sure you get your small loan approved
Request a free copy of your credit report from major credit reporting companies such as Equifax. It will help you understand why you are in a difficult financial position. Check errors in the report that may have lowered your score and inform the reporting agencies and your creditors about it.
Knowing your credit score is important as it allows you to be warier about your borrowing capability. The notion of “trying your luck” and applying for multiple loan applications can actually lower your credit score because each time you apply for finance, a hard credit enquiry is stamped against your name. If your application is rejected by multiple lenders, it will become even harder for lending agencies to accept your loan. As such it is important to understand what is actually on your credit file. If for example, you have a default on your credit file, then you can look at repairing your credit score by contacting a credit repair company.
If your credit score is below 700, you will more than likely be turned down by a bank. If accepted, chances are that the interest rate will be quite high. Alternatively, you can apply with alternative lending agencies that offer more flexible and tailored loan types for high-risk borrowers improving your chance of having a small loan approved.
Don’t hold more loans that you can afford
One of the main reasons that a lender will not approve your small loan, is due to the belief that you may not be able to make repayments. If you are struggling to manage all your debt, you may consider consolidating your debt into a centralised loan. This will help you better manage your finances as you will only have to make one repayment for all loan types. It is important to remember that you will still need to be proactive and determined to remain in control of your finances.
This process of combining loans is called Debt Consolidation and you can actually save money by doing so, along with a whole host of other benefits, including:
- Lower or frozen interest rates
- No more harassment from creditors (they are taken off of your hands)
- New loan terms tailored to you
- Just 1 debt to manage and repay
Choose your lenders wisely
You can shop for small loans online. It helps you save time and money in applying, and you may also benefit from lower rates. But, remember that there are many advance fee loan scams out there. So, make sure that you only deal with a licensed financial institution with excellent records.