How to increase the chance of personal loan approval

A loan may be needed at some time or the other for unexpected emergencies or a project being planned for the future.

You could be planning a trip or a wedding that may require a personal loan. Or you could have a medical emergency or need car repairs that may require a type of personal loans like a quick loan, payday loan or short-term loan.   

Businesstech.com says more than 500,000 new accounts were booked during the last quarter (last year) and the average loan amount for these bookings increased by 43.1%. In light of this, more South Africans are applying for personal loans to help them to meet their financial goals.

The decision-making process

The necessary checks and balances have to be done when applying for a loan. Identifying a need for a loan and qualifying criteria are important factors before coming to such a decision. Many lenders have loan calculators on their websites which will help you determine the affordability of a loan for you. Remember to always take into account any fees that may be associated with a loan such as an initiation fee and monthly admin fees.

It is up to the individual to determine whether there is enough leeway in a personal household budget to afford a loan. A loan applicant might have to cut down on unnecessary spendings such as holidays and other luxuries, to free up money to pay the loan. Better spending habits will boost a credit score that will help secure the loan.

It is also vital to make sure that you know how much money you will require and how fast you need the money, which will help you determine what type of loan you should apply for.

If you are in a rush for the loan but do not require a very big amount then you can apply for either a payday loan or a short term loan. If you need the money fast but require a larger amount then you can consider a quick loan and if you need a large amount of money but have some time to wait then you can benefit from the lower interest rates of a personal loan.  Each of these personal loan types come with their own repayment terms and interest rate offers.

Before you apply

It is vitally important that you know what loan type you need to apply for as well as the amount you can afford to pay back.

Once you know what type of loan you need you can research different lenders offering this type of loan. Before you hit the apply button make sure that you make a list of all the requirements of each lender. Make a checklist from this list so that you can be sure your loan is approved in the minimum amount of time.

Most lenders require basic documents from you:

• Your ID document
• Proof of address no older than 3 months in the form of a municipal bill or bank statement
• 3 months payslips
• 3 months bank statements

Some personal loans will be specialised and will require additional documents and proofs to be submitted with your application.

Available Student loans

If the loan application is for a student loan, make sure that you have the proof of registration as well as the costs involved in the completion of each year. It is a good idea to include quotes for things such as textbooks and laptops or even the cost of the internet as all of these are required over and above your university fees.

It is also likely that it will be either parents or guardians who will stand as surety for the loan so you will need to make sure that you have all the information for not only the student but also the person standing surety for the loan. Having all of the relevant information for the surety, student as well as detailed cost information for the course and institution will help you to have your loan approved easily.  

Student loans are unique in that only the interest portion of the loan is paid back while the student is enrolled in classes. This makes the initial monthly payments much lower. Once the student has graduated and is employed full time the lender will expect the capital amount of the loan to be paid back in monthly instalments. The time frame can be negotiated depending on affordability.

National Financial Aid Scheme (NSFAS) is currently the biggest issuer of student loans. These loans are especially advantageous to people with extremely low levels of income. This loan scheme is prepared to work with students who have parents who are unable to stand surety of such loans.   

The major banks have a wide range of study loan options for students. Once the course of study has been decided on, the loan will be granted based on the parent’s or surety’s income and financial standing.

It is a good idea to shop around for a student loan. There are many lenders who offer a wide variety of interest rates and other benefits. You could also consider applying for bursaries in your field of study to help with the financial burden.

Before the time that a child leaves school if at all possible parents should try and save up for their children’s tertiary education. Any amount, no matter how small, can assist your child’s journey into the world. Parents and children who know what studies they will pursue should discuss the financial obligations well in advance. This means the family can be better prepared in terms of streamlining financial spending to improve credit records that will make it easier to access a loan when the time arrives.

Checking credit scores

The public is entitled to at least one credit report a year from their credit bureau in a calendar year. It is important to make a thorough analysis of the report to determine whether the qualifying criteria can be met for the loan being accessed.

Checking the report diligently will help the client sort out any problems, if any, to have peace of mind about creditworthiness. It is important to check these reports for any mistakes or fraud that may negatively affect your applications in the future.

The report fleshes out all payments made, new accounts applied for, and spending patterns that can be tracked to give a loan applicant a better idea of financial controls.

Potential loan applicants should keep making regular payments on bills to maintain a favorable credit score.

Those wanting to apply for a personal loan should maintain moderate amounts of credit so that the lender or bank can see that they are responsible for credit. It is more likely that a person with a credit history will be granted more credit than a first-time applicant. When you have a positive credit history then a potential lender can see that you are good at repaying their store cards, credit cards and loans and they will see your application in a favourable light.

How surety and insurances work

Make sure that someone can sign as a surety because it is important to the loan application. Children, who are staying at home with parents or guardians, should discuss any loan application plans with them. Everyone can then decide whether such a commitment can be made or not as a parent might have to sign surety. A surety is often required for a student loan.

Signing surety is a huge commitment because if anything goes wrong with payment, the debt falls onto the shoulders of the person who has agreed to stand surety for the debt.

With bigger loans such as home loans, a dual income is a considerable help. Insurance policies, like life polity ceded to the bank and other investments, might have to be used as collateral against such a debt.

Collateral means that banks or private lenders can offset insurance policies, investments, stocks, and unit trusts against the loan if the person who secured the loan falls back on repaying it. So loan applicants who possess these types of policies or investments stand a good chance of securing loans.

Leveraging a pension fund

South Africans are allowed to leverage their pension fund or portion thereof against a home loan. However, not all pension funds have the same rules, so it is up to the individual to check what their particular pension funds offer in this regard.

Advantages of a pension-backed housing loan:

• According to privateproperty.co.za it may be used in conjunction with the Finance Linked Individual Subsidy Programme - a government housing subsidy if the criteria are met by the applicant.
• It may be used in conjunction with a regular mortgage loan– in the absence of a deposit on a property.
• It can be used to buy vacant land, build a house, or improve one’s current home.
• Favourable terms (up to 30 years or as defined by the pension fund rules), interest rates, and fees on the loan can be negotiated with the fund.
• They are provided to employees of participating funds and/or employees irrespective of their income bracket.
• If the prime lending rate changes, the loan term is adjusted rather than the repayment amount (dependent on several facets such as age, income, and pension fund conditions), the privateproperty.co.za website adds.

Which bank or lender?

So many banks and lenders provide a wide variety of loans. All these different lenders have different rules, laws, and obligations. Banks have a strict formalized structure to loan repayments, but rates of interest can vary.

The Annual Percentage Rate (APR) is an important factor to consider when negotiating any loan. The APR is the accumulation of the yearly interest rate on loans. However, this rate includes various bank charges initiation costs and admin fees. So when an application for a loan is made, applicants should factor in the APR inclusive of the additional costs as described above.

It is important to consider what type of loans the lender or bank offers when choosing a service provider. You should also consider each lender’s interest rates and fees charged as these small amounts could save you money in the long run.

Once you have chosen the lender or bank you want to apply to make sure that you know what documents and information they require from you. Make sure to make a checklist so that you don’t miss anything and delay the process or potentially have your application declined.

When applying for a loan at a major bank it is important to rein in spending during the planning stages. Banks will take a close look at the debt-utilization ratio when starting the process of studying any loan application. This is the ratio of debt commitments against disposable income. If this is exemplary, the chances of qualifying for a loan will increase. If spending on things that are not needed in the budget can be curbed, it will contribute greatly to the applicant’s credit score and increase the chances of securing a loan.

Not creditworthy? – Not to worry

Bad credit lenders are available to people who need loans despite them being blacklisted for bad credit.   Lenders who offer this type of credit usually charge higher rates of interest. These lenders will carefully assess an applicant who has a bad credit record, ability to pay any loan.

The size of the loan borrowers are eligible for will depend on whether they can meet the lender’s criteria. This is an expensive way of borrowing money because of the higher interest rates.

However, if poor payers acquire a loan in this way, it is a gilt-edged opportunity to become creditworthy again.

If loan applicants are approved for a loan, they could boost their credit score by paying diligently and responsibly which can lead to full financial recovery in the future.

Be honest

It is very important, to be honest when supplying details to a lender, banker, or matching broker when a loan application is made. If the applicant keeps it honest and provides all the correct information, it allows for a hassle-free process and increases the chances of further loan approval into the future.