How to Maximise Your Borrowing Power When Looking for a Loan

Shopping for a loan is a great way to cover running expenses or acquire expensive purchases that you usually wouldn't be able to afford. In most cases, loan applications are successful, and the money is properly allocated to alleviate cash constraints. 

 

However, in some cases, lenders may not always quote a loan amount that would help in your unique financial situation. This is especially true if you have a poor credit score or have yet to step into the world of lending with a history of financial moves just yet.

 

A situation like this may require you to request multiple loans or may even force you to reevaluate your financial strategies to compensate for a reduced loan amount or no loan at all. 

 

That said, you don't have to resign yourself to a perpetually low lump sum payment. There are many ways you can maximise your borrowing power and acquire a reasonable loan amount despite your credit history or loan profile's potential restrictions. 

 

If you're looking to maximise your borrowing power and need some valuable tips on how to loan for a good amount while not compromising your needs, you're in the right place. Below, we have some great insights on how you can get the best loan for your situation.

1. Improve Your Credit Score Early

When applying for a loan, lenders will take a good look at your profile. One major factor they'll evaluate is your credit score.

 

If you have a high credit score, lenders will more likely allow you to borrow a large amount of money. They may also allow you to borrow without needing to provide collateral or security, streamlining the loaning process for both parties.

 

On the other hand, applicants with a low credit score may find it more difficult to secure a favourable loan amount. They may also be offered lower figures in their loan or high interest rates to compensate for their riskier profile.

 

If you want to maximise your borrowing power, then it's crucial to take the right steps to raise your credit score as early as you can. To improve your credit score, you can do the following: 

 

• Firstly, pay your bills on time, as a clean and timely payment history is appealing for any lender and will give you the appearance of a reliable individual.
• Secondly, avoid opening multiple lending agreements with multiple lenders in a short timeframe, as this could look concerning to potential lenders. 
• Third, you should dispute and correct any inaccuracies in your credit report. 
• Lastly, always ensure that your credit card balance is at most 30% below your max limit every month.

 

By doing these things, you'll be able to build your credit score in time. This, in turn, will increase your borrowing potential and allow you to access more favourable rates in your next loan application.

 

That said, if you need a loan right now but suffer from a poor credit score, there are loan agreements that can help pull you out of a financially precarious position and give you the opportunity you may need. If this is you, you can consider loans like Azora's bad credit loans to help you out when you may need financial assistance in a short period of time. Loans like these are curated specifically for individuals with poor credit and are a great option for immediate financial aid.

2. Reduce Existing Debt

Besides not opening more than one lending agreement, you should also prioritise reducing any existing debt streams as much as possible. 

 

Maintaining low debt shows lenders that you can manage your finances responsibly and are a low-risk client. This is because low debt reflects strong financial discipline and stability, which are key traits of a reliable borrower.

 

Lenders don't know the exact financial status of their clients. That said, they have one key metric they rely on. Typically, lenders evaluate your debt-to-income ratio when deciding how much borrowers can afford to borrow. 

 

If you have a high debt-to-income ratio, this would tell lenders that you have other financial obligations and may not be in a good position as you're paying multiple credit lines, like credit cards, personal loans, or mortgages. This would consequently lower your borrowing power.

 

On the other hand, a low debt-to-income ratio would signal to lenders that you're fairly financially responsible. This would improve your credit profile and give you a higher chance of getting approved for a higher borrowing amount.

 

With that said, it's important to apply for a loan with a clean debt state as much as possible. You can consider consolidating your loans into one big loan with favourable rates beforehand if you have existing loans that can't be fully cleared for the time being.

3. Avoid Making Big Purchases

Before initiating any loan shopping endeavours, it's a good practice to leave a buffer of at least a month or two if you recently purchased a high-ticket item. Making big purchases like holiday bookings, a new smartphone, or a piece of machinery on credit can increase your debt-to-income ratio.

 

This added strain to your debt can signal to lenders that you have a high financial responsibility, which can lead them to reject your application. This is because the liquidation will lower your bank account figure or available credit with your pre-existing credit lines, which signals a more rigid financial capability.

 

Having said that, the examples above are relative to one's capital and requested amount. It's certainly possible for a millionaire to have purchased the latest iPhone on credit without risking their profile if they have enough money in their bank and a good profile. It only becomes a risk for the borrower if your recent purchase took up a huge chunk of your capital and credit line.

 

In any case, if you can afford to delay major purchases until after your loan is approved, doing so will help preserve your borrowing power.

4. Get Pre-Qualified Before Applying

Another way to maximise your borrowing power is by going through a pre-qualification process for various lending companies that serve your community. 

 

Doing this can help you know the potential financial range that you can get based on your current financial profile without having to undertake a large commitment.

 

This procedure can benefit borrowers immensely as it allows them to compare quotes from multiple lenders more easily. It will also allow you to negotiate with different lenders as you have an estimated range you can leverage and show to competitors. 

 

Most importantly, undergoing the pre-qualification process also puts your foot in the door when applying for an actual loan. This means that you'll be less likely to be rejected or offered an amount you don't want, as you've undergone the necessary pre-screening already.

5. Choose the Right Loan Product

It might seem self-explanatory, but another way to get the most out of your potential loan is by choosing a loan option that suits your unique needs in a tailored agreement or policy.

 

Each loan type and lender serves a different purpose for each individual and is therefore equipped with tailored terms and conditions. It is important to be aware of these loan types before agreeing to a single loan term, and it is essential that you understand all the information regarding a loan to pick the best one for your specific needs.

 

Here are some of the loan products you can get from lending companies:

 

• Personal loan: This loan type is ideal for personal expenses like travel, home upgrades, and miscellaneous personal endeavours.
• Car loan: This loan type is good for financing vehicles. It can be secured, a balloon payment structure, or unsecured, depending on the borrower's profile.
• Mortgage: This loan type is for purchasing property, and it's often structured with low interest.
• Business loan: A loan for funding business operations and expansion.
• Student loan: A loan for paying education-related tuition expenses.

Understanding the structure and type of loans you can get can help you make a better decision that aligns with your goals. Be sure to review each loan product a company offers to ensure that you're getting one with the best terms for your needs.

 

Be sure to consider all of these factors when you're looking for a loan to get the most borrowing power possible for your future investment.