Feeling the squeeze of the credit crunch? You’re not alone. According to independent research, the middle class of England was hit hard, with more than one in four families reigning in their purse strings and trying to spend less. Worse, almost 1.5 million homeowners usually need to refinance or adjust their mortgages each year, but they’ll face higher rates and less favourable interest schemes. Because of this, a personal loan is often a much better choice than refinancing, or trying to squeeze money out of credit cards and other short term financing options that aren’t suited to long term use.

The thing is, where does one start with a personal loan, and how do you find the best deals without pouring over loan websites and applying? Too often this is a wasted effort, as you lose time, only to find out that you don’t meet the criteria. Worse, excessive applications can significantly hurt your chances of getting a loan with a good lender. This is because every time you apply for a loan, if the lender runs a full check, it shows up on your credit report. The problem with this is that if you are denied, there is no reason given, which can scare off other lenders.

Lenders who see denials will assume the worst about you.

This is not because you’re bad, but rather because it’s their job to assume the worst. They know that sometimes a borrower might talk about needing money to pay off PayDay Loans, or get their television back from the clutches of a pawnbroker. When a lender hears these sorts of things, they correctly assume that the loan applicant is probably not an expert at managing their finances. As a result, they deny the loan application, no matter how great that person’s credit is.

After a few denials, a loan applicant learns not to talk about the real reasons they want a loan. By then though, they usually have a few denied loan applications on their credit report. Other lenders will then deny them based on the logic that if the first bank didn’t approve their loan, there must have been a valid reason. This leaves people unable to get a loan, and still struggling with their other costs. If you think of it from the perspective of a lender, it’s like meeting someone who has a string of failed marriages or jobs. You couldn’t honestly go ask the other employers or lovers what went wrong. Instead, you have to look at the common denominator in all of the failures – which is the applicant.

You can avoid this if you plan carefully, with these 4 tips.

1. One of the first things you’ll need to do is make two lists, including all of your expenses. The big list will include all of your necessary bills, like rent, food, credit card debt, other loans, and transportation, as an example. The second list will have all of your unnecessary expenses, such as a cell phone, fitness club membership, and morning latte budget. Then you’ll total up each list, add them together, and subtract that amount from your total net monthly income. Your net income is the actual cash you have in the bank after each payday, but before you’ve paid anything else off. Anything left over from that amount is what you can afford to spend.
2. Take that amount, and divide it by four. This is 25% of your disposable income, and something lenders will consider when looking over your application for a loan. You’ll want to search for personal loans you can afford such as the ones shown here. Making sure they not more than 25% of your disposable income. If you find that the loans you are interested in are more than this amount, you’ll need to start trimming down items on your non-essential list, until you are able to afford a monthly loan payment at 25% of your disposable income. Keep in mind that the less your loan payment is in comparison to your disposable income, the more likely you are to be approved.
3. Once you have found a loan you can afford, and have revised your lists accordingly, type both lists up, in two columns, and print out several copies. You’ll take these with you to the lender, along with your bank statements, proof of income, and identification. These documents will show the lender that you are aware of proper financial management, and can justify your loan repayment without significantly impacting your current budget. When they see that you’ve taken these steps, it will make them view your entire application in a much more positive light, even if you already have great credit.
4. The final piece of putting things together is to justify your loan. A lender will want to know that you’re not just borrowing money to have a big party. You need to be prepared to answer their questions, and reassure them of your good intentions. Explaining what you will be using your loan for will give a lender the last piece of information they’ll need, though some may ask about this first before spending time on your application. Some good examples of loans include furnishing a new home, remodelling, or buying a car. Bad examples would be things like restoring a car, using the money for a home down payment, taking a vacation, or investing the money into a great deal your friend has. Give a strong justification for your personal loan, with solid supporting documentation, and you’re sure to impress lenders and significantly increase your chances of getting a loan.

If you’re considering a business loan, that’s an entirely different sort of application process, but involves very similar steps to those outlined above. You’ll need a different set of documents though, and if you’re the business owner, you’ll also need to have the documents provided above, as it will be your income the loan is based on, unless your business has an established credit history, and sound financials.

Pay attention to what you’re doing, take the right steps with your paperwork and presentation, and you’ll have a very good chance of getting a personal loan that meets your needs and fits your budget.