Steps to Get a Personal Loan: There are various types of personal loans to select from. Whether you’re looking for debt consolidation loans, home renovation loans, medical loans, or wedding loans, most lenders have comparable application processes.
Although the applications are typically straightforward, you should be completely prepared and understand what to expect in order to enhance your chances of approval.
Steps to Get a Personal Loan
There are numerous reasons to obtain a personal loan, including an unexpected hospital expense, an emergency car repair, or to fund much-needed home repairs. If you’ve decided that a personal loan is the best sort of financing for you, take these steps to make the application process as simple as possible.
1. Run the numbers.
Before taking out a loan, you should know how much money you need to borrow, your expected interest rate, and any upfront expenses, such as an origination fee.
Running the figures will be nearly impossible unless you know what rates and repayment terms are available. However, playing around with a personal loan calculator might help you get a sense of what payback would look like for you.
- Takeaway: Before applying for a personal loan, inquire whether the lenders you’re considering impose an origination fee or other upfront expenses. Calculate how much cash you’ll need — after fees — to cover your expenses and determine what a reasonable monthly payment would be for your budget.
- Next Steps: Use a personal loan calculator to get a sense of what your dream loan may look like. This can help you narrow down your search for lenders who offer reasonable rates and terms based on your credit situation.
2. Check your credit score.
Most lenders will do a credit check to see how likely you are to repay your loan. While some online lenders have begun to use alternative credit data, the majority still base eligibility on creditworthiness.
Personal loans normally demand at least acceptable credit, which ranges between 580 to 669. Good and exceptional credit scores above 670 will increase your chances of being authorized at a competitive interest rate.
Your credit report contains information on all of the factors that influence your credit score. This is what lenders use to analyze your potential risk as a borrower during the approval process. You are entitled to one free copy of your credit report every year from AnnualCreditReport.com. Request a copy from each of the three major credit agencies — Equifax, TransUnion, and Experian — to receive a complete picture of your credit.
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3. Consider your options.
Depending on your creditworthiness, you may require a co-signer to get authorized for a personal loan with a reasonable interest rate. If you do not have a co-signer, or if the lenders you are considering do not accept co-signers, you may be able to obtain a secured personal loan rather than an unsecured one.
Secured loans require collateral to back up the loan total, such as a car, a home, or cash in a savings account or certificate of deposit. Because the lender bears less risk with a secured loan, the rates and terms are frequently better than with most unsecured loans.
However, they are not without risk. If you default on the sum or fail to repay the loan, the lender may legally seize your collateral to cover the delinquent debt. That being said, only take out a secured loan if you are confident you can make the monthly payments both now and in the future.
You’ll also need to consider where you’ll obtain your personal loan, especially if you have poor credit. Some institutions, such as traditional banks, have higher lending standards, making it more difficult to obtain authorized with low credit.
Some internet lenders, however, specialize in working with consumers with poor credit, and some credit unions offer short-term loans that are less expensive than payday loans.
Just keep in mind that unsecured bad credit loans typically come with higher interest rates and costs than other loans. Prequalify with as many lenders as possible and conduct research to determine the most reasonable option.
- Takeaway: If you do not fulfill the qualifications for a competitive interest rate but require a loan right quickly, a co-signer, a bad-credit loan, or a secured loan may increase your chances of approval.
- Next steps: If you do not match the approval criteria, look for lenders who accept co-signers and contact a creditworthy family member or friend about becoming a co-signer.
4. Select your loan type.
Once you know where your credit stands, you can decide which form of loan is ideal for you. While some lenders are liberal in how you use the funds, others may only allow you to utilize them for certain objectives.
For example, one lender may enable you to take out a personal loan to cover an unexpected need, whilst another lender may only allow you to utilize the cash for debt consolidation. Before applying, ensure that you can utilize the cash for your intended purpose.
Similarly, depending on the type of loan you obtain, you may receive varied terms and interest rates. For example, home improvement loans have longer repayment terms than emergency loans, while debt consolidation loans have lower starting APRs than general purpose loans.
5. Check around for the best personal loan rates.
Avoid accepting the first offer you receive. Instead, compare lenders and loan kinds to see what you qualify for.
If you’ve had a long-term account with your bank or credit union, check there first. If you have a good repayment and banking history, your bank or credit union may be ready to offer you a better rate or special benefits and incentives.
Most financial institutions additionally offer you to preview your expected interest rates and eligibility odds before applying. Known as prequalification, this instrument is frequently used as the initial step in the application process and has no effect on your credit score. Prequalify with at least a few lenders to quickly compare prospective offers and discover the best loan for your credit circumstances.
However, not all lenders provide prequalification, but they must disclose the minimal qualifying requirements. Shop around and only apply to lenders that explicitly state their personal and financial acceptance conditions. Most lenders will conduct a hard credit investigation during the application process, lowering your score by a few points.
Avoid serious credit harm by just applying to lenders you qualify for, especially if prequalification is not available. If you apply to numerous lenders, keep them all within 45 days of each other. This ensures that several hard checks are treated as a single inquiry on your credit report, reducing the negative credit impact.
- Takeaway: Don’t accept the first offer you receive. Compare various lenders and loan kinds before applying, and consider prequalifying (if available) to lessen the overall negative impact on your credit.
- Next steps: Shop around and compare offers, rates, and fees to choose the lender that best suits your needs. If it is available, prequalify with numerous lenders before applying to check your expected eligibility odds and rates.
6. Choose a lender and apply.
After you’ve done your homework, choose the lender with the greatest offer for your needs and begin the application process.
Depending on the lender, you may be able to complete the entire application online. Some lenders may ask you to apply in person at a local bank or credit union location.
Every lender has a separate set of requirements for application information. You will normally be required to supply basic personal information, as well as your income and employment status. Most lenders will want you to indicate your intended loan purpose during the application procedure as well.
The lender will also ask you how much you want to borrow and may offer you a few options to consider. You will also have the opportunity to check the loan’s exact terms and conditions, including fees and repayment time. To avoid any hidden expenses, read the loan agreement completely.
- Takeaway: Each lender has distinct qualification requirements and may request different information. Some lenders may need you to apply in person, while others will allow you to complete the entire application online.
- Next steps: Once you’re ready to apply, gather all of the necessary information and follow the application instructions.
7. Provide the relevant documentation.
Every lender has various paperwork requirements, and after submitting your application, you may be asked to supply further documentation. For example, you may need to upload or fax a copy of your most recent pay stub as proof of employment or income.
The lender will inform you if it requires any documentation from you and what that process entails. However, the faster you supply the information, the quicker you will receive a decision.
- Takeaway: Be prepared to provide more information as asked during the application process, and keep personal and financial documents on available.
- Next Steps: Gather pay stubs, proof of address, driver’s license information, and W-2s ahead of time to expedite the application process. If your lender requires further documentation, provide it as soon as possible so that you can receive an approval decision.
8. Accept the loan and begin making payments.
After the lender notifies you that you have been authorized, you will sign the loan documentation and accept the terms. Once you sign the loan agreement, you should receive your funds within a week – however some online lenders may send it to you within one or two working days.
When you are accepted, begin keeping note of when your payments are due and consider setting up automated payments from your checking account. Some lenders even offer interest rate discounts if you set up automatic payments on your account.
Consider paying more each month, even if it is only a tiny amount. While personal loans are typically less expensive than credit cards, paying off the loan early saves you money on interest.
- Takeaway: You could receive funds within one to two business days of being authorized and accepting the loan terms. Once you’ve been accepted, think about how you’ll pay down your balance.
- Next Steps: Make a strategy to pay your monthly debt on time and in full. To make the procedure easier, set up automated payments and pay more each month if possible to save on interest.
To obtain the best personal loan deal for your specific financial position, compare rates, conditions, and fees from multiple lenders. You can accomplish this by visiting each lender’s website separately or by registering for an online marketplace that allows you to prequalify for numerous loans at once without affecting your credit.