5 Ways to Improve Your Chances of Getting a Loan in Memphis

Sometimes, no matter how much you budget or save, you may need additional funds to help you afford a home renovation, medical emergency or urgent bill. A loan in Memphis could help you get the money you need now and then pay it back in predictable monthly payments, often with a fixed interest rate.

Keep reading for some steps to take if you’re looking to improve your chances of getting a loan.

Carefully consider how much to borrow

Before you apply for a loan, consider how much money you need and what you can afford to pay back each month. One way to do this is to add up all your monthly expenses, including groceries, car payments, utilities and entertainment, and compare the total to your monthly income — this number is a good indicator of what you can afford for loan payments without stretching yourself too thin.

Improve your credit score

Your creditworthiness, or your likelihood of repaying a loan on time, plays a role in the loan amount and interest rate a lender may offer you. If you have a low credit score, a lender may consider you a riskier borrower, and you may be less likely to be approved or qualify for the lowest interest rate or highest borrowing amounts. But you may be able to improve your creditworthiness by adopting some of these tips:  

Check your credit report

Make a habit of regularly checking your credit report. Sometimes, errors or inaccurate information may lower your score without you realizing it. You can request a copy of the report from the three major credit bureaus — Equifax, Experian and TransUnion — once per week.

Pay your bills on time

Your payment history has the most significant impact on your credit score. Missed payments can stay on your credit report for up to seven years. To avoid late payments, add your payment due dates to your calendar, create alerts on your phone or consider setting up automatic payments from your checking account.

Pay down your debt

Lenders will look at your debt-to-income ratio (DTI), which shows how much of your monthly income goes toward your monthly debt payments. A lower DTI, typically under 36%, may indicate you’re a responsible borrower who already knows how to manage debt.

Your credit utilization ratio is another important factor in your overall credit score. This ratio is the percentage of available revolving credit, like a credit card, you’re using at a given time. A low credit utilization ratio, typically under 30%, shows a lender you know how to use your credit responsibly.

See if you can pay down any of your debt and lower credit card balances before applying for a loan.

Prequalify with different lenders

One of the best ways to see what kind of loan terms you may be offered is to shop around and prequalify with several different lenders. Prequalifying for offers isn’t the same thing as getting a final offer, but it could give you an idea of the amount you might be approved for, as well as estimated interest rates and other terms.

Another benefit of prequalifying is that it doesn’t affect your credit score the way submitting a completed loan or credit card application will.

Think about a secured loan

If you have a credit score on the low end of the range, a secured loan might help you get the money you need. With a secured loan, you provide collateral to the lender to back the loan. Collateral is something of value you own, like a car. If you fail to repay the loan, the lender may legally claim the collateral and sell it to recoup their money. Because of this, a secured loan can be riskier to the borrower than an unsecured loan, which doesn’t require collateral, but it could be a way to get a higher loan amount or better interest rate.

Add a co-applicant

Applying for a loan with a co-applicant who has a higher income or better credit profile than you may make it more likely you’ll be approved for a loan or that you’ll receive more favorable terms. It’s important to choose a co-applicant carefully, however, because they’ll be equally responsible for paying for the loan and they’ll have equal access to the loan funds.

Add a cosigner

You could also consider adding a cosigner to a loan. A cosigner is sometimes also called a guarantor. A cosigner could be a family member or close friend who has a better credit score than you, which could help you get a lower interest rate and lead to owing less interest for the loan over time. It’s important to make sure your cosigner knows ahead of time that they will be on the hook for the loan if you don’t repay it.

Take small steps toward getting the right loan for you

If you’re looking to improve your chances of getting a loan, there are some steps you could take to put yourself and your finances in good standing. Decide how much you can afford to borrow, boost your credit score, try prequalifying with different lenders and consider a secured loan or a co-applicant or cosigner.

Some of these ideas may work better than others, depending on your situation, so choose what is most doable for you to help you get a loan that supports your needs.