Getting a personal loan could be that next move you need to make to finalize a personal goal, finance an adoption, move cross country, or consolidate a debt. It begins with checking your credit, getting pre-qualified, and weighing your credit options.
Most personal loans can be categorized as unsecured loans, and that means that you do not need to present a collateral, which may be a car or house, to acquire it. And they generally range from between $1,000 to $100,000, with repayment options to over two to seven years. The loan rates and terms depend on the lender and your credit.
Get a personal loan in these 8 steps.
1. Check What Your Credit Score Says
If you have a strong credit score you’ll have a better chance of getting qualified for a personal loan with reduced interest rates. Know what your credit score is saying to find out where you fall. These categories generally help to determine your creditworthiness.
– 300 – 629 – Bad credit
– 630 – 689 – Fair or average credit
– 690 – 719 – Good credit
– 720 and above – Excellent credit
If your credit score appears to be less friendly, there are ways you can build your credit again. One major thing to note is that you need to repay your loans on time to build a good credit, with the amount of credit you use in relation to your credit limits.
Make necessary corrections on your credit score. You may also want to request your credit report to dispute inaccuracies on the report.
2. Consider How Much You Really Need To Borrow
Avoid a situation where you have to borrow for unnecessary reasons. What exactly do you intend to do with the loan?
Determine the real amount you need – the higher you borrow, the higher the interest and monthly payments which can put pressure on your earnings.
3. Compare Estimated Rates
When you are able to find out your credit score, you’ll have a better idea of the yearly percentage rate and payment amount you should be open to on a personal loan. There are personal loan calculators that can be of help in discovering the estimates to see how your monthly payment can impact on your income.
4. Get A Loan Pre-Qualification
You’ll understand a bit of what offers you can receive when you pre-qualify for a loan. Several online lenders carry out soft credit checks when they are getting you pre-qualified which doesn’t affect your credit score.
During the pre-qualification process, you’ll need to provide answers to questions such as:
– The purpose of the loan
– The amount of the loan you are applying for
– Your income
– Your address, phone number, and email
– Your citizenship status
– Monthly debt obligations (mortgage, student loans, rent, etc.)
– Date of birth
– Name of college and degree
– Company name and location
If you get denied of a personal loan, you may any of the issues highlighted below:
– Little or no work history
– Low credit score
– Too many credit enquiries carried out recently – such as credit card applications.
– Low or poor credit score
– High debt-to-income ratio – if you have above 40%, your application is regarded as a risky one.
5. Shop Around For Personal Loans
Beyond brick-and-mortar loan institutions, check for online lenders. Check out with credit unions too – you’ll discover safe unsecured loans. Compare your loan amounts with pre-qualified offers, interest rates, and monthly payments from multiple lenders to settle for the best loan option for you.
Credit unions may proffer more flexible terms with lower interest rates even if you have bad credit. They are also good to consider for small loans of $2,000 or less. You’ll also find out big financial institutions that offer unsecured personal loans – make your comparison and go for the best shot.
6. Compare Available Offers With Other Credit Options
Before you go for a personal loan, check out if you qualify for a 0% credit card. With a good or excellent credit, you are likely to qualify for a 0% interest credit card on purchase for 12 months or more. Once you are able to repay the loan within the introductory period of the card, you’ll find it as the cheapest option for you. And if not, APRs can shoot as high as 25%.
You may also want to add a co-signer. If you find it hard to qualify on your own for a personal loan, then consider bringing on a co-signer with excellent credit. Lenders will typically put the credit score of the co-signer into consideration along with yours when your loan is to be approved which would very likely turn out favorable to you.
Thirdly, go for a secured loan. People with bad or fair credit may be offered a lower APR with a secured loan. You’ll need collateral which could be a house, car, or savings account. As a homeowner, you may want to consider a home equity loan or line of credit as a cheaper option. But the asset may be forgotten if you default on repaying your loan.
7. Read The Fine Print
Before you put your signature down for any loan, it is important to consider the loan terms and conditions. Check out for:
– Automatic withdrawals. If there is the condition of automatic withdrawal from your checking account, it is important to prevent overdraft fees by setting up a low-balance alert with your bank.
– Prepayment penalties. Most online lenders are not likely to charge you a fee for paying off a loan early, which is called a prepayment penalty.
– Credit bureaus get your payment reports. Find out if your lender reports your payments to credit bureaus on-time to grow your credit score.
– APR surprises. You should have a clear disclosure of your loan costs, and any origination fee included. All interests and upfront costs should be stated clearly and figured into the APR.
– The flexibility of the payment features. There are lenders that allow you to pick the due date of your payment, may allow you to move a payment forward as a result of economic or other difficult situations, or may forgive an occasional late fee
– Direct payment to creditors. Some lenders send loan repayments directly to creditors, which is good to borrowers trying to consolidate debt.
8. Application And Approval
After deciding on a potential lender, you’ll have to provide the required documentation and information to formally get the loan. Depends on the lender you are relating with, but generally, application requirements may include:
– Identification: A passport identity, state ID, driver’s license, or Social Security card.
– Proof of income: Bank statements, pay stubs, or tax returns.
– Verification of address: Lease of agreements or utility bills.
Your potential lender will run a hard credit check which may briefly drop your credit scores by some points and would show up on credit reports for about 2 years. In about a week or less, depending on the lender’s terms, you should get your loan paid to you.