How to improve your chances of being approved for a personal loan

If you’re applying for a personal loan, chances are it’s not because everything is going perfectly. Maybe you’re juggling high-interest debt, covering an unexpected expense, or trying to get your finances back on track. And you wouldn’t be alone: total Canadian consumer debt grew by 4.1% just in the third quarter of 2025. Whatever the reason, it’s easy to assume that loan approval comes down to one thing: having a “perfect” credit score.

In reality, lenders look at a much bigger picture. Credit history matters, but so do income stability, existing debt, and how you approach the application itself. While there’s no guaranteed formula for approval, there are steps you can take to improve your odds, without pretending your finances are flawless.

Here’s what Canadian lenders typically look for, and what you can realistically do to strengthen your application.

1. Strengthen your credit score

There’s no way around it: your credit score plays a meaningful role in whether you’re approved for a personal loan. Most Canadian lenders rely on credit reports from Equifax and TransUnion to understand how you’ve managed borrowing in the past.

Credit scores are often grouped into rough ranges:

• Excellent: 760+
  
• Very good: 725–759
  
• Good: 660–724
  
• Fair: 560–659
  
• Below 560: Limited options, usually with higher interest rates
  

That said, lenders don’t expect perfection. Many people apply for personal loans specifically because their credit utilization is high or they’re struggling with revolving debt. A lower score doesn’t automatically mean rejection; it simply affects which lenders are likely to approve you and at what cost.

What helps most:

• Pay everything on time. Payment history is one of the biggest drivers of your score and a major trust signal for lenders.
• Be cautious with new applications. Applying for multiple loans or cards in a short period can lower your score slightly and can look worse to lenders.
• Keep older accounts open if you can. Closing long-standing accounts can reduce the length of your credit history.
  

A note on credit utilization: you’ll often see advice like “keep it below 30%.” That’s a helpful target, but it isn’t always realistic if you’re applying because you’re stretched. The key point is that high revolving balances can weigh on both your credit score and approval odds, and one purpose of a debt consolidation-style loan can be reducing that revolving pressure over time.

2. Show stable income and employment

When lenders review your application, they’re ultimately trying to answer one question: Can you reasonably repay this loan? Stable income and employment go a long way toward answering that.

Lenders generally feel more comfortable when borrowers have been with the same employer for several months, work full time or on a long-term contract, and can clearly document their income. That documentation might include recent pay stubs, notices of assessment, or bank statements showing regular deposits.

If you’re self-employed or freelance, approval is still possible, but lenders will usually want more context. One or two years of tax returns, along with evidence of consistent income, helps show that your earnings are reliable rather than sporadic. In many cases, applications don’t fail because income is too low, but because it’s hard to verify. Making your income easy to understand can significantly improve your chances.

3. Lower your debt-to-income ratio (DTI)

Your debt-to-income ratio compares your monthly debt payments to your gross monthly income. Many Canadian lenders prefer to see this ratio under 40%, and some banks aim closer to 35%. These figures are often treated as rules, but they’re really guidelines.

In reality, plenty of people apply for personal loans precisely because their debt-to-income ratio is already higher than recommended, often due to credit card balances with high interest rates. Lenders take this context into account. If a loan reduces multiple payments into one more manageable obligation, it may actually improve your overall financial picture.

That said, DTI still matters because it affects affordability. If there are small ways to reduce it before applying, such as paying down a portion of a revolving balance, avoiding new debt, or temporarily increasing income, it can help. But the bigger goal is ensuring that the loan payment fits comfortably within your budget, not forcing your finances to meet an ideal ratio on paper.

4. Ask for a realistic loan amount

One reason personal loan applications can be declined is simply asking for too much. Lenders assess loan size in relation to your income, existing debt, and credit history, and an amount that feels out of sync can trigger a rejection.

At the same time, applying for less than you actually need doesn’t guarantee approval. The better approach is realism: borrow enough to solve the problem you’re facing, without stretching your finances further. In many cases, lenders will counter with a different amount or term based on what they’re comfortable offering anyway.

Applying for a reasonable loan size can improve approval odds and help ensure the loan actually solves a problem instead of creating a new one.

5. Choose the right lender

Different lenders have different risk tolerances, and this can significantly affect your chances of approval.

In Canada, options generally include:

• Big banks, which often offer lower rates but stricter approval criteria
  
• Credit unions, which may take a more flexible, relationship-based approach
  
• Online lenders, which tend to approve a wider range of borrowers more quickly
  
• Alternative lenders, which may accept lower credit scores at higher interest rates
  

Because of these differences, a rejection from one lender doesn’t mean you’re unqualified everywhere. It often just means that particular lender wasn’t the right fit for your current financial profile. Taking the time to apply for the best personal loan for your situation aligns best can improve your approval odds and help ensure the loan is something you can realistically manage.

6. Consider a co-signer

In some cases, adding a co-signer can improve your chances of approval by reducing the lender’s risk. While co-signers are more common for auto loans and student loans, some Canadian lenders do allow them on personal loans as well.

A strong co-signer usually has good credit, steady income, and relatively low debt. But co-signing is a serious commitment. If you miss payments, the co-signer becomes fully responsible for the loan, and their credit can be affected just as much as yours.

Because of that shared responsibility, this option isn’t realistic for everyone. It’s best considered carefully and only when both parties are clear on the risks involved.

7. Offer collateral (if possible)

Another way to reduce lender risk is by offering collateral. Secured personal loans are backed by assets such as a vehicle, savings or GICs, or home equity through a secured loan or HELOC.

Because the lender has something to fall back on if payments aren’t made, secured loans are often easier to get approved for and usually come with lower interest rates. The trade-off, of course, is risk: if you’re unable to repay the loan, you could lose the asset you used as collateral.

Unsecured personal loans don’t require collateral, but approvals rely more heavily on your credit profile and income stability. If your credit is limited or your debt load is high, unsecured options may still exist, though often at higher rates.

For borrowers who aren’t quite ready for a traditional personal loan, short-term credit-building options like Nyble can sometimes help. Nyble offers a small line of credit that reports on-time payments to the major credit bureaus, allowing users to build credit history without taking on a large loan. Products designed to report consistent, on-time payments to the credit bureaus won’t fix things overnight, but over time they can strengthen your profile and unlock better borrowing options down the road.

8. Check your credit report before applying

Errors on credit reports are more common than many people expect, and even small mistakes can quietly hurt your approval odds. Before applying for a loan, it’s worth reviewing your free credit reports from Equifax and TransUnion to see exactly what lenders will see.

Look for things like accounts you don’t recognize, incorrect balances, or late payments that you believe were reported in error. Fixing mistakes won’t instantly transform your credit score, but it can remove unnecessary obstacles and ensure lenders are assessing accurate information.

9. Avoid payday and high-risk loans first

Payday loans and other high-risk loans are built for speed, not sustainability. They typically come with very high fees, extremely short repayment timelines, and automatic withdrawals that leave little room for error.

That matters when you’re considering a personal loan because affordability is ultimately about your own cash flow. If a short-term loan is already taking a significant bite out of your income, it becomes harder to comfortably take on a longer-term payment, even one with a lower interest rate. In other words, these products can solve an immediate problem while making the next step harder.

Payday loans also don’t help you build credit in most cases, since they typically aren’t reported to the major credit bureaus unless they go to collections. That means you’re paying a high cost without strengthening your borrowing profile at the same time. When possible, lower-cost alternatives, such as credit-builder products or secured options, can help you meet short-term needs without making longer-term borrowing harder.

10. Apply strategically

Not all loan checks are created equal. Many tools that show what you might qualify for, such as Ratehub.ca’s LoanFinder, use a soft credit check, which lets you explore potential offers without affecting your credit score. Once you formally apply for a loan, however, it usually triggers a hard inquiry, and each hard inquiry can slightly lower your score.

Because of that, it pays to do your homework before applying. Using pre-qualification tools can help you narrow your options so you are not applying blindly. A smarter approach is to focus your efforts and apply to one or two lenders at most. If you are declined, spacing out applications by two or three months can help your credit profile recover before you try again.

11. Limit the number of applications

When you’re worried about getting approved, it can be tempting to apply everywhere at once and hope that something sticks. Unfortunately, that approach often works against you. As mentioned above, each formal loan application usually triggers a hard credit inquiry, and several inquiries in a short period can chip away at your credit score.

Just as importantly, a cluster of applications can raise red flags for lenders. From their perspective, multiple recent inquiries may signal higher financial risk, even if you’re simply trying to explore your options. That perception can make lenders more cautious, not more flexible.

A more effective strategy is to slow the process down. Take the time to research which lenders are most likely to be a good fit for your credit profile and income, use pre-qualification tools where available, and then apply selectively. In many cases, applying to one or two lenders gives you better odds than casting a wide net.

Final thoughts

Improving your chances of being approved for a personal loan doesn’t happen overnight, and it doesn’t require perfection. Lenders look for stability, transparency, and a realistic plan for repayment.

If you’re declined today, it doesn’t mean you’ll always be. Small, consistent steps paired with informed borrowing choices can gradually put more options within reach.

Read more about loans:

• Tax implications of shareholder loans
• Loans for Canadians with bad credit: How to improve your score
• What to know before taking out a loan in Canada
• How to consolidate debt in Canada

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