What should I avoid before applying for a personal loan?

If you're planning to apply for a personal loan, avoiding common financial missteps is crucial. Lenders assess your financial behaviour carefully, and even minor errors can hurt your chances of approval.

In this guide, we’ll cover the most important things you should avoid before submitting your personal loan application to help improve your approval odds.

Avoid taking on new debt before applying

Avoid opening new credit accounts or taking on additional loans right before applying for a personal loan.

Each new credit inquiry can lower your credit score slightly, and new debt increases your overall debt-to-income ratio, making you a riskier borrower in the eyes of lenders.

Don’t miss payments prior to your loan application

Your payment history is one of the most significant factors in your credit score. Missing a payment on your credit cards, mortgage, or other bills can negatively impact your credit score quickly.

Ensure all your payments are made on time in the months leading up to your application.

Lower your credit card balances before applying

High credit card balances increase your credit utilisation ratio, which can hurt your credit score. Try to pay down your credit card balances as much as possible before applying.

A lower utilisation ratio indicates responsible credit management.

Keep your employment stable before applying

Lenders look for stable income to ensure you can repay the loan. Changing jobs or moving to self-employment may raise concerns about your financial stability.

If possible, avoid significant employment changes until after your loan application is processed.

Delay large purchases until after approval

Big-ticket purchases, especially on credit, can affect your debt levels and available savings.

Both can raise red flags for lenders assessing your ability to manage additional debt responsibly.

Check your credit report for errors

Before applying for a personal loan, review your credit report for errors or inaccuracies that could harm your application.

Dispute any incorrect information with the credit bureaus to ensure your report accurately reflects your financial behaviour.

Compare lenders thoughtfully to avoid mistakes

Applying with multiple lenders within a short timeframe may lead to several hard inquiries on your credit report, potentially lowering your score.

Take time to research different lenders and compare their terms, fees and customer reviews to ensure you choose the most suitable option for your needs.

Prepare all required financial documents early

Lenders often request documents like pay slips, bank statements, and identification.

Having these ready can streamline the application process and demonstrate your preparedness and financial responsibility.

Frequent asked questions before applying for a loan

Does applying for multiple personal loans hurt my credit score?
Yes, multiple hard credit inquiries in a short period can lower your credit score temporarily.

How long should I wait after improving my credit before applying?
Ideally, wait at least one or two billing cycles after improving your credit utilisation and payment history.

How much personal loan can I realistically afford?
A good rule of thumb is that your total monthly debt payments, including your new loan, should not exceed 30% to 40% of your gross monthly income.

Does my employment history affect my personal loan application?
Yes, lenders prefer stable employment history as it indicates steady income and lower risk. Frequent job changes may make approval more challenging.

Can I use a personal loan to consolidate debt?
Yes, many borrowers use personal loans to consolidate credit card debt or other high-interest loans, potentially lowering their overall interest costs.

Apply only when you're ready

Preparing for a personal loan application involves more than just filling out forms. By avoiding these common pitfalls, you can present yourself as a low-risk borrower, potentially qualifying for better interest rates and terms. Taking a proactive approach to your financial health before applying can make a significant difference in your loan journey.

Ready to see if you qualify? Check your eligibility for a Novuna Personal Loan now and take the next step towards achieving your financial goals.

Check your eligibility