Whether you’re applying for a mortgage or you’d like a personal loan to consolidate debts, start a business, or something else, you’re likely limited in how much you can borrow based on several factors. Lenders view your credit score, debts, income, assets, and collateral when determining an approved loan amount.
If any of these numbers are on the low side, you may struggle to get the funding you’d like. However, these tips can help you increase the
loan amount you can qualify for.
Tips to Get a Higher Loan Amount
Every lender has its own eligibility requirements and preapproval procedures, but these general tips may help you get approved for a higher loan amount.
1. Improve Your Credit Score
Your credit score is usually a number between 300 and 850 that indicates to lenders how well you manage credit. A higher
credit score typically translates to a lower interest rate on loans, which will lower your monthly payment.
Some strategies to boost your credit score include:
- Paying all of your credit card statements, loans, and bills on time.
- Checking your credit report and disputing errors, if necessary.
- Pay down other debts, like mortgages, car loans, or student loans.
- Avoid applying for any additional new credit.
- Use credit cards sparingly.
By reducing your debts and showing a history of paying your bills when they’re due, you can improve your credit score over time.
2. Show More Income
The higher your income, the greater the loan amount you’re likely to be able to get. You probably can’t just ask for a 20% raise from your employer tomorrow, but you can show other sources of income you may not have considered.
Some of these income sources may include:
- Interest or dividends from investments
- Alimony or child support
- Income from a rental property
- Income earned from a side hustle
- Pension, retirement, or Social Security payments
Lenders take into consideration the entire financial picture that you show them, so don’t forget any income sources. That $200 you earn each month tutoring the neighbor’s kid might make a real difference.
3. Lower Your Debt-to-Income Ratio
Your debt-to-income ratio, or DTI, is your monthly debt payments divided by your gross monthly income. Lenders use this measurement to evaluate what percentage of your income goes to debts, and it’s an important factor in determining an approved loan amount.
You can lower your DTI in several ways:
- Pay another loan amount down or off.
- Reduce your credit card balances with a balance transfer card.
- Refinance existing loans to lower the monthly payment.
- Consolidate debt into a single installment loan.
The lower your DTI ratio, not only are you more likely to qualify for a higher loan amount, but you may also get a better interest rate, too.
Qualifying for a Loan
While these tips can help you qualify for a larger loan amount, it’s important to understand a few basic tips about the loan application process, too. It’s always valuable to show as much income as you can and pay down debts to reduce your DTI and improve your credit score, but don’t forget to get multiple quotes.
Different lenders have varying requirements and
risk tolerance, so just because one lender won’t approve you for your requested loan amount, that doesn’t mean another one won’t. It’s a good idea to get at least three quotes to compare the terms you’re offered and increase your chances of getting the loan you want.
