When it comes to applying for any type of loan, preparation is key.
Improving your credit, lowering your DTI and decreasing the amount you need to borrow can help you qualify for a loan.
Loan denial isn’t the end. There may be other funding options or opportunities to improve your finances and try again.
During Financial Literacy Month, pull out your TV guide — or search your favorite streaming service — to see what you can learn from your favorite show, or get a blast from the past through ’90s-era TV.
In the aftermath of the savings and loans crisis of the late ’80s and early ’90s, some TV shows dedicated an episode or two on lessons in lending. Among the many other personal finance lessons learned from ’90s TV, such as how to qualify for a loan and what to do if you’re denied, it provides important tips to help you succeed with your finances.
Though technological advances have changed the way we research and apply for loans, the basics are relatively the same and still important to know. Today, these shows mostly give us a hit of nostalgia, but there’s also a lot we can learn from some of the most popular shows of their time.
Plot breakdown: Buffy the Vampire Slayer — “Flooded”
Upon returning from the dead and with a broken pipe flooding her basement, Buffy tries to get a personal loan from the bank after learning she’s broke. Dressed to the nines and bringing all of her documentation, including old report cards, she tries to prove to the loan officer she is responsible enough to borrow money, but she is denied the loan because she’s missing one important thing – income.
Even though she saves the loan officer’s life from a demon, he still denies her loan application. With money troubles piling up, she reviews her finances for the first time and eventually gets a job at the local fast food restaurant.
While getting good grades and saving the world from an apocalypse is great and all, they don’t show a lender you can manage debt responsibly. And that’s really what lenders are looking for through their qualification requirements.
Kimball, who is the head of a peer-to-peer lending platform for personal loans and other financing options, notes that lenders review credit to determine your creditworthiness and evaluate your debt-to-income ratio (DTI) to see whether you can manage your finances.
“Before applying for a personal loan, it’s important to take a step back and assess your overall financial health,” says Kimball. “This means understanding your credit status, income, and existing debt.”
To improve chances of approval, he recommends reviewing your credit report for errors, paying down debt to lower your DTI and getting prequalified to compare borrowing options. He also recommends gathering the necessary personal loan documents ahead of time, such as proof of identity, income and residency:
While preparation is key, it may not keep you from loan denial. While this can be disappointing, it can also be an opportunity to learn about your finances and make improvements.
“Start by reviewing the specific reasons behind the denial. This feedback is invaluable and can point you in the right direction,” says Kimball, noting that you may need to work on improving your credit score or DTI by making on-time payments and concentrating on paying down high-interest debt.
Or maybe you just need a cosigner to strengthen your application. For Buffy, loan denial meant she needed to create an income by getting a job. For you, it may mean asking for a raise.
Plot breakdown: Family Matters — “Twinkle Toes Fadlo”
Laura gets into her dream school, Harvard University. When Carl goes to the bank to take out a loan to fund his daughter’s education, he learns that he doesn’t qualify: They have too many loans and not enough income to cover another.
Ironically, they also make too much money to qualify for financial aid. When Laura overhears her parents discussing how they can’t pay for her to go to Harvard, she decides to go to a lower-cost, nearby college instead. She says she will go to Harvard for law school in four years when she’s more ready.
“Laura was ahead of her time,” says Andrew Pentis, certified student loan counselor and consumer lending analyst for Bankrate. “The past few decades have taught us that the single biggest way to trim your college costs is to change your school choice.”
“It’s understandable if, like Laura, your eyes would light up at the chance to step onto a private Ivy League campus,” says Pentis, “but choosing a public university — or better yet, starting at a community college before transferring — can shrink your overall cost of attendance by tens of thousands of dollars.”
There are other ways to lower your overall costs, starting with federal financial aid. “Laura and her dad were onto something with trying to access Federal Student Aid, but don’t assume that your family also earns too big of an income to qualify for assistance,” says Pentis, pointing out that FAFSA not only provides access to federal student loans but also federal grants, work study, state grants and institutional aid.
Aside from federal aid, students can lower college costs through private scholarships, savings or by living at home and commuting to campus. If students have flexible schedules, they may even work a part-time or on-campus job during the semester. Consider taking these steps before turning to private student loans.
It’s critical to exert this effort to lower your college costs before you attend college – and every year you’re enrolled – because your future self will thank you. If you spend less on school, you’ll also borrow less. Then you can begin your post-college career focused on your professional desires instead of your education debt.
— Andrew Pentis, Bankrate certified student loan counselor and consumer lending analyst
Plot breakdown: Roseanne — “Looking for Loans in All the Wrong Places”
Roseanne, Jackie and Nancy need a loan to open their restaurant. Their real estate agent recommends checking out the Small Business Administration to get help with financing.
They go to a local SBA office to ask for a loan and are excited to learn the government agency supports minority-owned businesses, including ones owned by women. They’re less than thrilled when they learn the agency doesn’t provide loans directly but instead guarantees them.
The SBA employee asks questions about the women’s experience in the restaurant industry and about managing a business, and it’s clear they have none. Because of this, he says the SBA is unable to guarantee the loan. Instead, the women end up getting funding from Roseanne’s mom, who agrees to invest if she can become a fourth partner.
“When choosing a business loan, the most important thing to consider is how you’re going to pay back the loan,” says Bankrate’s small business loans writer Marlese Lessing. “Many businesses choose to start small with their loans and scale their business slowly as they develop their business model.”
Lessing lists several different financing options for established and startup businesses:
These funding options, along with using savings and going into a partnership, will differ on whether you need to pay them back and how you’ll qualify. For most borrowing options, you’ll need to have some experience and strong credit, according to Lessing.
“Lenders will most often look at the amount of time you’ve been in the business, your annual revenue and your personal and business credit score,” she says. She also warns that, while startup loans may have more flexible qualification requirements, they may come with higher rates and lower amounts and require collateral.
If you want to qualify for a business loan, you need to establish your experience in the business sphere. Lenders will often request a business plan or summary in your loan application, and highlighting any experience you have working in your chosen industry can make your loan application more appealing.
— Marlese Lessing, Bankrate small business loans writer
Of all three lending lessons, there’s one ongoing theme: When it comes to borrowing money from a lender — whether a personal loan, student loan, business loan or other — preparation is key. Understanding your financial situation, reducing the amount you need to borrow, knowing your options and having all the necessary information ready can all help increase your chances of qualifying for a loan and managing your debt successfully.
