How to Apply For Personal Loan
Personal loan often have lower interest rates than credit cards and can help you pay for most significant purchases, like an engagement ring or fixes to your house.
You can also get a personal loan to lower your general APRs and consolidate your credit card balances if you have a lot of high-interest debt. This way, you won’t have to worry about making too many monthly payments at once.
Personal loans have downsides, like fees and high-interest rates, just like any other type of loan. People should consider loans before applying because they can affect their credit score and general financial health.
How to Prequalify for Personal Loan
Before you even apply for a personal loan, you can find out what interest rates and terms you might be able to get. You won’t know these until you send an official application.
Most of the time, when you get prequalified, the lender only does a soft credit check, which doesn’t hurt your credit score. But after you send in the whole application, they will do a hard credit check, which will lower your score slightly for a short time.
Even though your pre qualification offer isn’t official until you apply, looking at possible loans from different lenders helps find the best one for you.
How to Qualify For a Personal Loan
Every person applying for a personal loan has different circumstances that affect their ability to repay it. Some tips and rules can help you improve your chances of getting a personal loan.
Most lenders look at your credit score, credit history, salary, and DTI ratio to see if you can get a personal loan. Each lender has different minimum standards for each of these things, but here are some things we think you should do:
At least a 670 credit score
Your chances of getting approved will increase if you keep your credit score at least 670. We suggest you have at least a 720 score if you want the best terms.
Monthly income that is steady and consistent
Different lenders may have very different minimum income standards, and some may not have any at all. But it’s essential to have at least a steady source of income to show that you can make your regular payments.
Not more than 36% DTI
Some lenders will let someone with a DTI of up to 50%, but if you want to improve your chances of getting approved, you should aim for a DTI of less than 36%.
Because every lender has different base requirements, it’s best to get pre-approved as soon as possible and find out what standards the lender needs to meet. This will ensure that your requested loans are appropriate for your current financial state.
Applying For a Personal Loan
Getting a personal loan can be broken down into seven steps.
See Your Credit Score
You don’t need excellent credit if you want a personal loan. Some lenders only work with people who have bad credit. However, some of the best personal loan interest rates are only available to people with good credit, which starts at a FICO Score of 670.
If you think your score could be better, look at your Experian credit report to find out what is affecting it. After that, do something with what you learn. Here are some things you can do to improve your credit before you apply for a personal loan:
- Pay off your credit card debt.
- Pay off the debts that you owe.
- Don’t try to get more credit unless you need it.
If you think there is wrong information on your credit report, you can challenge it with proper credit reporting agencies (Experian, TransUnion, and Equifax).
You can get credit for on-time rent, gas, phone, and streaming payments if you sign up for Experian Boost.
Figure Out How Much To Borrow.
Making sure you don’t borrow too much or too little depends on how much you need. Besides that, personal loan companies usually offer a range of loan amounts. Knowing what you need can help you weed out lenders who can’t help you.
Remember that some lenders charge an application fee, which is taken out of the money you get from the loan. Because of this, you might need to borrow more money to cover the fee.
Take the case where you must borrow $10,000, and the loan charges a 5% origination fee. The amount you need to pay the fee and still get a $10,000 loan is about $10,527, which is found by dividing $10,000 by 0.95.
Figure Out an Estimated Monthly Payment.
Once you know how much you need, look into personal loan interest rates to understand how much you can borrow based on your credit score. Then, use a personal loan tool to determine how much you’ll have to pay each month and how much interest you’ll pay over the loan’s life.
Doing the math can help you decide if you can afford to pay back the loan amount and give you an idea of how much it will be.
Get Pre-Approved With More Than One Lender.
Applying with the bank or credit union you already do business with might be tempting. But even though having all of your money in one place can be helpful, you might be able to save more money with a different loan.
Good news: many of the best personal loans let you get pre-approved. With a soft credit check, which won’t hurt your credit score, you can look at and compare rate quotes.
Getting prequalified with at least three to five lenders will give you a good range of offers. The process usually only takes a few minutes.
Look at All the Loan Terms.
The interest rate on a personal loan is the most essential thing to think about, but you should also think about other loan terms, such as
How long do you have to pay back the loan? Personal loans can have terms of one to seven years, but some lenders are more flexible than others. You may be able to lower your monthly payment by extending your payback term, but you will likely also have to pay more in interest.
Pick a Lender and Fill Out an Application.
Once you know which loan gives you the best deal, you can usually apply on that lender’s website. The steps will be a little different based on which one you pick, but in general, you’ll need to give them the following:
- Name
- When you were born
- The number for Social Security
- Postal Address
- How to get in touch
- Loan amount and term you want
- The loan’s goal
- Information about jobs and income
- Status of housing and monthly payment
- Driver’s license or another picture ID from the government
You might also need proof of your income, like a pay stub, W-2 form, tax returns, or bank bills. If the lender wants money, they will review your credit report and make a “hard inquiry.” Your credit score may drop by a few points for up to a year.
It will stay on your report for two years. Usually, you’ll hear back from the lender within seconds after sending in your application. However, some lenders may need more time to review your finances and credit.
Look Over the Offer and Agree to the Loan
A hard credit check is usually needed for an official loan application, which differs from prequalification or requalification. This can affect your credit score. After learning more about your credit, the lender can make you a clear offer, which may or may not be the same as the first quote.
If you get the loan, read over the deal and the terms and conditions to make sure it fits your needs. You can try again with a different loan if the terms aren’t quite what you liked. Sign the loan deal if you agree to the terms. The lender will then send you the loan money.
Personal Loan Requirement
Credit Score and History
One of the most important things a lender looks at when someone applies for a loan is their credit score. Credit scores are between 300 and 850 and are based on how well you’ve paid your bills in the past, how much debt you have, and how long you’ve had credit.
Income Standard
To make sure that borrowers can pay back a new loan, lenders set income standards for them. Each lender has its minimum income standards. Recent tax returns, monthly bank statements, pay stubs, and signed letters from companies can all be used as proof of income. Self-employed applicants can show tax returns or bank deposits.
Original Fees
Many lenders charge personal loan origination fees to cover the costs of handling applications, doing credit checks, and closing. These fees are not part of the qualification process, but many lenders charge them. These fees are generally between 1% and 8% of the total loan amount.
The exact amount and credit score of the applicant affect these fees. Some lenders take origination fees as cash at closing, while others fund them as part of the loan amount or take them out of the total amount of money that is paid out at closing.
Collateral
If you want a protected personal loan, the lender will want to see some valuable things as collateral. When someone borrows money to buy a house or a car, the security usually has something to do with the loan’s primary goal. But other valuable things, like cash accounts, investment accounts, real estate, and collectibles like coins or rare metals, can also be used as collateral for secured personal loans.
Debt-to-Income-Ratio
The debt-to-income ratio (DTI) is a percentage that shows how much of a borrower’s overall monthly income goes toward paying off her debts each month. Lenders use DTI to determine if a potential user can pay back both new and old debt. That’s why a DTI of less than 36% is best, though some lenders will let a perfect applicant through with a number as high as 50%.
Conclusion
It is essential to look into several loan providers and programs. You can lower your monthly payment and your likelihood of default by taking the time to shop around for the best loan terms.
Wait for the results, which could return in minutes or a few days after applying. An answer will come to you faster if your application is complete and mistakes-free. Review your final loan papers, accept them, and sign them.
