2. Employment history
Steady employment can go a long way toward improving personal loan eligibility and the amount of money you can borrow. The longer you've been on the job (or in a similar job with another company), the more secure your position appears. While employment history has nothing to do with your credit score, it's another tool that lenders use to decide how likely you are to repay personal loan funds.
3. Income and debt-to-income ratio
One of the most critical factors in determining how much you can borrow is how much you earn each month. Lenders want a sense of what your budget will look like once you add another monthly payment into the mix. One way a lender gauges this is to check your debt-to-income (DTI) ratio.
To calculate your DTI ratio, a lender adds together your fixed monthly payments. This includes mortgage (or rent), auto loans, credit cards, and other personal loans. Once they have a total, they divide that number by your gross monthly income (the amount you earn before taxes and other deductions).
Here's how one person might calculate their DTI:
Total monthly debt payments: $1,275
($850 mortgage + $325 auto loan + $100 credit card)
Total monthly income, pre-tax: $5,000
DTI: $1,275 (monthly payments) ÷ $5,000 (monthly income) = 0.25 = 25%
In this case, the DTI is 25%. It's generally good to keep your DTI below 36%. While the maximum acceptable DTI varies by lender, it's a smart move to keep yours as low as possible -- especially if you want to qualify for a larger loan.
4. Secured loan vs. unsecured loan
Most personal loans are unsecured loans. There's no collateral with an unsecured loan, so if you stop making payments, the lender can't take any of your possessions. (The lender can still sue you, though.) It can be hard for some people to qualify for a large unsecured loan.
You may be able to borrow more with a secured loan. With a secured loan, you'll put up something valuable as collateral. The bank can take possession of this collateral and sell if you fail to pay back loan funds as agreed. You can usually borrow up to half of the value of the collateral. If you have a car worth $20,000, you can likely get a $10,000 loan by offering the car as collateral. Other examples of collateral for a secured loan include a savings account, retirement account, jewelry, or anything else of value you own.
How to qualify for a larger loan
If you qualify for a smaller personal loan than needed, it's possible to increase the loan amount you're eligible for. Here are some ideas on how to get a loan for a larger amount:
- Shop multiple lenders
- Opt for a longer repayment term
- Enlist a cosigner
- Offer collateral (apply for a secured loan)
- Pay down existing debt
- Improve your credit score
- Increase your income
We'll go into these in more depth below.
Shop multiple personal loan lenders
It's always a good idea to consider multiple lenders, but it's especially important if you want a large loan. Get prequalified with multiple lenders to find out how much money each lender can offer. Prequalification shouldn't impact your credit score (lenders use what's called a "soft credit check" to get an idea of your credit score), so this is a risk-free way to rate shop.
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