If you’re considering applying for a personal loan but don’t know where to start, we have some tips for you. You’ll first want to see what you might qualify for by reviewing your credit and researching your options based on where your credit stands. From there you’ll need to get together the necessary paperwork and apply for that loan.
Yes, it’s pretty much that simple — it’s even possible to be approved for a loan in less than 24 hours if you’re applying for a loan online — but there’s always a lot to consider when applying for a loan, particularly when you’re doing it online. That’s because there are some fraudsters who set up fake loan sites, so be sure to share your personal information only with lenders that you know for certain are reputable. You don’t want to become a victim of identity theft.
When Should I Consider a Personal Loan?
Personal loans are typically sought after if there is a big purchase that needs to be made or there is an emergency, and some unexpected expenses arise. If any of this is the case, then you are probably in dire need of cash very quickly.
A personal loan is a type of credit offering that is given to a consumer for a variety of different reasons; some of which we have already mentioned. They are usually not considered for a more specific purpose such as buying a home or car.
Personal loans are installment loans which means if you are approved by the lender, you will receive a lump sum of cash that you will need to repay in a certain amount of time as dictated by the lender.
Personal loans are often unsecured, so you will most likely find much higher interest rates than you would if you were seeking a secured loan. But, you will also hopefully find rates that are much lower than if you were to use your credit cards instead.
Because personal loans are not secured, they may require a much higher credit score for approval. If you find that your credit scores may be lacking, you will want to consider other financing options that may be available to you.
A few scenarios indicative of choosing a personal loan could be any of the following:
- A home improvement project
- Financing for a business purchase
- A much-needed vacation or getaway
- Payment for a medical procedure
- Financing for a wedding or other big event
- Appliance purchase
- Debt consolidation
Personal Loan for Debt Consolidation
One of the most common reasons people choose a personal loan is for debt consolidation. However, unless you have a concrete repayment plan in place that is manageable, you may want to reconsider a personal loan and instead look into peer-to-peer financing.
A personal loan is a viable solution for debt consolidation if you have significant debt, but it is not out of control. When used for a moderate amount of debt, a personal loan for debt consolidation makes sense and may save you some money when it comes to interest.
However, you will want to make sure that your spending remains under control so that the debt goes away instead of grows because you suddenly have access to a lump sum of funds due to the personal loan. Make sure to use the personal loan as intended and make the payments on time.
Personal Loan Versus Peer-to-Peer Lending
Peer-to-peer lending (P2P lending) is when money is borrowed from a business through an online service that matches lenders with borrowers. The loan given by the lender is not secure and is not protected by any government guarantee which makes it a higher financial risk for the lender.
An advantage of peer-to-peer lending may be lower interest rates than you would typically see with a traditional bank. The application process also takes a few minutes, so it is a lot easier to shop around to find the best loan opportunity with the best available interest rates.
Step 1: Check Your Credit
As you begin the unsecured personal loan process, you’re going to want to check your credit and credit history. That’s because, whether or not you qualify for a personal loan will depend upon your creditworthiness. The interest rate you will be charged also will rely on where your credit stands.
You can start reviewing your credit by checking your credit score. You can get a free credit score at Credit.com. And if you haven’t checked your credit reports lately, you can request free copies of your credit reports from the three major credit bureaus through AnnualCreditReport.com. Review the content of your reports carefully and correct errors before shopping for a loan.
Step 2: Research Before You Apply
Every time you apply for a personal loan, it triggers an inquiry into your credit, and this nudges down your credit score a little bit. It’s a promising idea be selective and apply only for loans that you actually qualify for.
You can ask lenders in advance about the minimum credit score that they require for personal loans. Some lenders will even list this information on their websites.
Step 3: Get Everything You Need for the Loan Application
In addition to checking your credit score, a potential lender will want to ascertain your annual income as well as your debt-to-income ratio.
Other details you are likely to have to share on a loan application include your monthly housing payment, whether you rent or own your primary residence, the name of your employer and how long you’ve worked there.
Having this information at the ready can help to speed up the process of applying for a personal loan, whether in person or online.
Step 4: Start Local
A good place to begin your search for a personal loan is with your local bank or credit union. It’s a good idea to research the credit criteria required for personal loans before you apply. Check your bank or credit union’s website or call their customer service. You may even want to make an appointment with a loan officer to discuss options.
Applying for a loan with an online lender is also an option. You can research loan options on Credit.com at your convenience, 24 hours a day.