When it comes to loans, banks are some of the best financial institutions you can approach. Most of the time, they have lower interest rates compared to other lending institutions. What’s more, borrowing money from a bank can actually improve your credit score.
You might be a little hesitant to apply for a bank loan due to the strict and long list of requirements. However, all of these are for your own protection. Besides, there are a lot of ways that you can boost your loan application’s approval chances. Here are just a few:
Have a Stable Source of Income
Banks (and all other lending institutions, for that matter) like stability. After all, they’re still businesses and they need to earn as well. Thus, don’t assume that because you have declared a high income that your loan application will be immediately approved. What you have to prove is that you can pay consistently. Often, someone who has a small but stable source of income will get approved over someone with big but inconsistent earnings.
If you’re an employee, stay with your current employer if you’re planning on getting a loan. If you’re a business owner, try to make an application once you’ve already made more consistent sales. Do note that being a contractual employee or being self-employed doesn’t mean you will automatically be declined. However, it’s still best to have a stable source of income at the time of your application to boost approval chances.
Avoid Major Purchases Right Before Applying for a Loan
The less you owe other creditors, the better for your loan application. Thus, as much as possible, avoid making major purchases using your credit card before applying for a loan. If you can, settle other debts as well. Doing these will not only increase your chances of getting approved for a loan but also make it easier for you to handle the monthly payments.
Again, as earlier mentioned, banks and lending institutions like stability. Therefore, if you have other liabilities, lenders will assume that you’ll have a more difficult time paying and your loan approval chances will be lower. Try to clear as much debt as you can and get a positive debt-to-income before applying for a new loan.
Maintain a Good Credit History
A good credit history shows banks and financial institutions that you can be trusted to handle money and pay on time. This, in turn, can boost your chances of getting your loan application approved. One of the best things you can do to improve and maintain your good credit history is to pay your bills on time. And if you can, pay them in full.
Make sure to also spend less than the credit limit of your credit card. This shows that you have better control over your finances and can therefore be trusted to handle a loan responsibly.
Provide as Much Information as You Can
Part of the loan application process is submitting various documentary requirements. Before even filling out the application form, make sure that you have all the necessary papers ready. For many banks and lending institutions, the usual requirements include a proof of income, proof of billing, and government-issued IDs.
For employees, proof of income usually means your one-month payslip, the latest copy of your ITR (BIR Form 2316), or a certificate of employment. For business owners or self-employed individuals, proof of income can mean your ITR and/or a copy of your bank statements. Make sure to check with the lender so you can provide any and all important requirements.
You should also check if there are any secondary documents that you can provide. It’s still best if you can provide all the primary requirements, but it also doesn’t hurt to have “back-ups” such as extra IDs just in case you need supporting documents. Of course, make sure to fill out your application form with correct and accurate information.
Establish a Relationship
If you’re applying for a loan from a bank, having a relationship with that specific bank can greatly boost your chances for loan approval. It doesn’t matter if you have a credit card, a savings account, or a time deposit. The important thing is that you have bank-related transactions that can improve your financial credibility. Loyalty is a big thing with banks, too, so the longer you’ve had the account then all the better.
Don’t worry if you only have accounts in other banks, however. Any bank account can help establish financial credibility. Just make sure that your account has a good credit standing.
What you have to remember is that there is no real guarantee that any bank or other lending institutions will grant you a loan. It all depends on the circumstances. However, following these tips can hopefully boost your chances of getting approved. Good luck!