How to Improve Your Chances of Personal Loan Approval

But don't let this discourage you — there are concrete steps you can take to become a more attractive loan candidate. In this article, we will discuss different ways to help you qualify for a personal loan in Canada and, in case you get a rejection, we’ll explore how to handle a denial.

Before You Apply

Success with personal loans starts long before you submit your application. These first steps will set a strong foundation for your loan approval process.

Check Your Credit Score

Lenders typically pay attention to your credit score first. Get your free credit report from Equifax or TransUnion Canada. A score above 650 is generally considered good, but aim for 700+ to access better rates. 

If your score needs work, give yourself a couple of months to improve it before applying. Small improvements like paying bills on time and keeping credit utilization below 30% can boost your score significantly.

Clean Up Your Credit Report

Look for errors on your credit report — they're more common than you think. Reach out to the credit bureaus to fix such issues as:

• Incorrect personal information
• Accounts that don't belong to you
• Wrong payment histories
• Outdated negative information.

Keep in mind that negative information stays on your report for six to seven years, but its impact diminishes over time. Recent positive credit behaviour carries more weight than old mistakes.

Calculate Your Debt-to-Income Ratio 

Lenders want to see that you can handle new debt. Add up your debt payments and divide by your income in a month. Keep this ratio under 43% — lower is better. Include:

• Mortgage or rent
• Car payments
• Credit card minimums
• Other loan payments
• Student loan payments
• Line of credit payments.

Getting Your Documents Ready

Proper documentation can make or break your loan application. Getting organized ahead of time shows lenders you're serious and helps speed up the approval process.

Organize Your Financial Records 

Create a folder with:

• Recent pay stubs (last three months)
• T4 slips and tax returns (past two years)
• Bank statements (last three-six months)
• List of assets and investments
• Rent or mortgage statements
• Proof of other income sources
• Investment account statements
• Recent utility bills for address verification.

Prove Your Income Stability 

Lenders prefer borrowers with a steady income. If you're employed, stay at your job while applying. 

Self-employed? Prepare:

• Business financial statements
• Contracts with regular clients
• GST/HST returns
• Business license or registration
• Proof of consistent income (preferably covering two years or more)
• Client testimonials or references
• Business bank statements.

Strengthening Your Application

Beyond basic requirements, several factors can make your application more compelling to lenders. Focus on these elements to stand out from other borrowers.

Build Your Savings 

Having money in the bank shows financial responsibility. Try to save:

• Three months of living expenses
• Enough for a down payment (if applicable)
• Extra funds for emergency expenses
• Regular contributions to retirement accounts
• Evidence of consistent saving habits.

Get Your Banking in Order 

Avoid these red flags in the months before applying:

• Overdraft fees
• NSF charges
• Late payments
• Large unexplained deposits
• Frequent transfers to gambling sites
• Multiple credit applications
• Maxed-out credit cards.

Consider a Co-Signer 

If your application needs a boost, ask a family member with strong credit to co-sign. But remember:

• They become equally responsible for the loan
• Your missed payments will influence their credit
• The relationship could suffer if things go wrong
• They'll need to provide their financial documents too
• The co-signer also needs to have a stable income and good credit.

After You Apply

The loan application process doesn't end when you submit your paperwork. How you handle the follow-up phase can affect your approval chances. Follow up professionally:

• Respond quickly to requests for more information
• Keep copies of everything you submit
• Stay in touch with your loan officer
• Ask questions if something isn't clear
• Document all communications
• Meet all deadlines promptly.

In addition, you should have a backup plan. If you're denied, ask why. Common reasons include:

• Too much existing debt
• Insufficient income
• Poor credit history
• Lack of said history
• Employment instability
• Recent major purchases
• Too many credit applications.

Use this feedback to improve your next application. Consider:

• Paying down existing debt
• Finding additional income sources
• Building your credit score
• Saving for a larger down payment
• Applying with a different lender
• Working with a credit counsellor
• Waiting for your financial situation to improve.

Remember: lenders want to approve loans — that's how they make money. Your job is to show them you're a responsible borrower who will pay back what you borrow. Take time to prepare, be thorough with your application, and present yourself as a serious, capable borrower. With the right preparation and a solid financial foundation, you can significantly improve your chances of success when you apply.