How to Get a Personal Loan With High Debt

How to Get a Personal Loan With High Debt
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When a lender issues you a personal loan, it wants to know you'll have the ability to pay it back. A high debt-to-income ratio makes it harder to secure a loan at a reasonable interest rate. If you're carrying a large amount of debt but need a personal loan, consider bringing on a cosigner, choosing a longer lending period, or working with a credit union instead of a bank.

Debt and Personal Loans

Lenders aren't necessarily concerned with how much debt you have -- they're more concerned with how much debt you owe relative to your income. To calculate your debt to income ratio, divide your monthly obligations -- such as mortgage payments, rent, child support, student loans, auto loans and credit card payments -- by your gross monthly income before taxes. For example, if your monthly obligations are $2,000 per month and your gross income is $4,000 a month, your debt-to-income ratio is 50 percent.

A low debt-to-income ratio means you have a strong flow of income relative to debt and you should be able to pay back a personal loan. According to Wells Fargo, a good debt-to-income ratio is 35 percent or less. You still may be able to get a loan with a debt-to-income ratio of 36 percent to 49 percent, but your personal loan options are more limited if your debt-to-income ratio is 50 percent or more.

Ways to Get a Loan

Get a Cosigner

Personal loan applicants can increase their odds of loan approval by adding a cosigner to the loan. A cosigner or loan guarantor isn't entitled to the loan proceeds, but promises to pay the lender back if the borrower defaults.

If you have a close friend or family member with a low debt-to-income ratio, ask her if she'd be willing to cosign on your loan. As long as your cosigner has a low enough debt-to-income ratio, her guarantee may satisfy lenders that aren't happy with your debt level.

Opt For a Longer Loan

The shorter the life of your personal loan, the higher your monthly loan payment will be. You often can opt to lower your monthly payment by increasing the loan's term and paying it back over a longer period. If you can prove you have enough income to cover a low monthly payment plus your existing obligations, the lender may be more willing to approve your personal loan application. The catch is that you likely will be charged a higher interest rate for a longer term, and you'll therefore pay more to borrow the money.

Go Non-Traditional

If traditional banks aren't willing to give you a reasonable personal loan, talk with credit unions instead. Nonprofit credit unions are dedicated to serving the community and often have special programs designed for members who need cash fast. For example, Prospera Credit Union offers a short-term personal loan for individuals who need an alternative to payday loans. Bankrate notes that the lending program also gives the borrower access to financial workshops, budgeting and debt management programs run by Goodwill Industries.