An installment loan is one of two major types of loan. You borrow a fixed amount from a creditor and you make a series of payments every month until the amount is paid off. These loans are the majority what people get for autos, boats, and home loans. Before you can get a loan, you need to ensure that the lender trusts you, which is why they look for a few key things. If you have bad credit finding installment loans with a lender that will approve you will be harder.
Here are some tips for helping you qualify for an installment loan.
Get a Copy of Your Credit Report
Your credit score is what lenders will use to figure out your suitability for a loan. High credit scores lead to being able to borrow larger amounts and lower interest rates. If your score is too low they may very well decline your application entirely.
Find out your credit score and use it to make a decision as to whether you should apply for an installment loan or not. Sometimes it’s more profitable to build up your credit score prior to taking out a loan.
Your Employment Status Matters
Lenders want to lend to people who have stable careers. It’s true that some careers are more favorable, but it pales in comparison to your employment status. Those who haven’t had their jobs for long or who’re unemployed should refrain from borrowing unless they absolutely have to.
Remain in a job for six months before applying for a loan. This will increase your chances of getting a loan.
Match the Lender to the Credit Score
Some lenders have policies in place where they won’t lend to people who have a certain credit score. There are no databases for this, but as a general rule of thumb most major banks won’t approve major installment loans for anyone with a score of less than 700. Private lenders tend to settle around the 640 mark.
Remember that declined loan applications are also reported on your credit record, so refrain from applying and hoping. Find the lender that fits your score.
Look at Your Debt-to-Income Ratio
Sometimes a credit score that falls below par can be overlooked if you have a high income or something else that makes you an attractive prospect. Your debt-to-income ratio is one of those statistics. Most lenders, if you’re trying to take out a big loan, will ask you whether you have any other loans. They may even ask to see a recent bank statement as proof of your claims.
To increase your chances of qualifying, you should make sure your debt-to-income ratio is as low as possible. This means that you can have active loans, but they shouldn’t take up more than a few percentage points of your income. If you need help figuring this out there is a good calculator here.
If you already have a big loan, consider waiting until you’ve paid it down.
Offer a Security Deposit
Installment loans, particularly the big ones, represent a risk to the lender. Sometimes who you are and what you say isn’t enough to qualify. The average installment loan is an unsecured loan, so you haven’t lost all hope. Consider a form of security to get the loan instead.
This is most often done with things like mortgages and car loans. You put up a significant asset as a security deposit and if you don’t make the repayments, the lender has the legal right to repossess that asset.
The pawn shop, for example, is a common type of arrangement at the lower end of the scale. You get your item back when you pay off the amount due.
Last Word – Improve Your Credit Score
The number one way to make sure you qualify for that installment loan is to improve your credit score. Ensure that you do everything you can to get your credit score up, which means making repayments and regularly paying off small loans successfully.
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