2. Work history
A steady job can go a long way in improving personal loan eligibility and the amount of money you can borrow. The longer you’ve been at work (or in a similar job with another company), the more secure your position seems. Although employment history has nothing to do with your credit score, it is another tool that the best personal lenders use to decide how likely you are to repay your 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 to get an idea of ââwhat your budget will look like once you add another monthly payment to the mix. A lender assesses this by checking your debt-to-income ratio (DTI).
To calculate the DTI, a lender adds up your fixed monthly payments. This includes mortgages (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 is how a person can calculate their DTI:
Total monthly debt payments: $1,275
($850 mortgage + $325 car loan + $100 credit card)
Total monthly income, before taxes: $5,000
DTI: $1,275 (monthly payments) Ã· $5,000 (monthly income) = 0.25 = 25%
In this case, the DTI is 25%. It’s generally good to keep your DTI below 36%. Although the maximum acceptable DTI varies by lender, it’s a good idea 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 is no collateral with an unsecured loan, so if you stop making payments, the lender cannot take any of your assets. (The lender can, however, sue you.) It can be difficult 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 are offering something valuable as collateral. The bank can take possession of this collateral and sell it if you do not repay the loan funds as agreed. You can usually borrow up to half the value of the collateral. If you have a car worth $20,000, you can probably get a $10,000 loan by offering the car as collateral. Other examples of collateral for a secured loan include a car, savings account, retirement account, jewelry, or any other valuables you own.
How to qualify for a larger loan
If you qualify for a smaller personal loan than necessary, it is possible to increase the loan amount you qualify for. Here are some ideas on how to get a loan for a larger amount:
- Shop multiple lenders
- Opt for a longer repayment term
- Hire a co-signer
- Offer a guarantee (apply for a guaranteed loan)
- Repay existing debt
- Improve your credit score
- Increase your income
We will discuss them in more detail below.
Shop multiple personal lenders
It’s always a good idea to consider multiple lenders, but it’s especially important if you want a large loan. Get pre-qualified with multiple lenders to find out how much money each lender can offer. Pre-qualifying shouldn’t impact your credit score (lenders use what’s called a “soft credit check” to get an idea of ââyour credit score), so it’s a no-brainer risk to rate the store.
Opt for a longer repayment term
If you need money fast, ask about extending the repayment period. Extending the repayment term will result in a lower monthly payment (meaning the lender may be willing to give you the loan you need). Be aware, however, that longer repayment terms mean you pay more interest over time.
Hire a co-signer
If someone in your life has an established credit history and a great credit rating, consider asking them to co-sign on the loan. The lender will then decide eligibility based on both of your credit scores rather than just yours. Remember: when someone is kind enough to co-sign a loan for you, they are putting themselves in danger. If you miss a payment, they’re on the hook for the money. Just ask someone to co-sign a loan that you are sure you can repay.
Offer a guarantee (apply for a guaranteed loan)
As noted above, if you are applying for a loan without collateral (an unsecured loan), you may be able to increase your loan amount by offering collateral (or applying for a secured loan). And if you’re already offering collateral, offering something more valuable could increase the amount you’re approved for.
Repay existing debt
If you are not approved for the loan amount you need, ask the lender for an explanation. Your DTI may be too high. If so, work to pay off your debts before reapplying for a personal loan.
Improve your credit score
Raising your credit score can help you get approved or get a bigger loan. One of the fastest ways to improve your credit score is to check for errors in your credit report. For example, an error might indicate that you missed a payment that you didn’t miss, or that you took out a large loan that you never requested. These can lower your score. To get started, order a free copy of your credit report, check for errors, and report them to the credit bureau.
For more information, see our guide: What credit score do I need for a personal loan?
Increase your income
A new job or side hustle may qualify you for a larger loan. It will likely take months to see the fruits of a side gig â and months more to provide a lender with proof of your increased income. Still, if you need a loan for something big like debt consolidation or a home improvement project, it might be worth using the extra time to fill up your checking account while you wait.
Still have questions ?
Here are some other questions we answered: