Sometimes we find ourselves in tricky financial situations, and are strapped for cash for whatever the reason might be. Maybe we just need a little extra cash to fix the cabinets in our homes, pay off some increasing debt, or even maybe for an unexpected medical emergency. Whatever the reason might be, life happens and we end up needing to take out personal loans.
Getting a personal loan can be tricky sometimes, which is why you want to be prepared. Here are 7 quick tips on how to successfully get a personal loan.
1. Know & Understand Your Credit Report
The first thing you want to do before you apply for a personal loan is to make sure you know and understand your credit report. You can get a free credit report here: AnnualCreditReport.com
With a higher credit score, you’ll have a better chance of getting approved for the personal loan you need to take out. Generally credit scores are categorized like this:
720 and up: Great or Excellent Credit 690-719: Good Credit 630-689: Okay or Average Credit 300-629: Poor or Bad Credit You want to make sure that your score never dips too low, since credit lenders are less likely to give you the loan you need or will charge a very high interest rate. There are many ways to build up your credit score, and the best way to do so is to make sure you make on-time payments on other lines of credit you may have. You also want to keep an eye out on your credit utilization ratio, which is the amount of credit you owe to your total credit limit.
2. Secured Vs. Unsecured Loans
Personal loans can be quite complicated sometimes, so it’s important that you understand all the nuances so you can apply for the loan that’s best suited for you. Most of the time, personal loans are unsecured, so lenders approve you based on your income, credit score, and other personal information. Unsecured loans don’t require you to put up any collateral, like your home or car, in the event that you default on your loan. Something to keep in mind is that you may not be able to qualify for an unsecured loan if you have a poor credit score.
However, there are some lenders that will offer secured personal loans, which do require you to put up collateral. If you fail to make payments on your loan, then the lender is entitled to whatever asset you put as collateral. For the most part, you don’t want to be taking out secured loans, but they can be an option in the event of an emergency.
3. Variable-Rate Vs. Fixed-Rate Loans
Next, you’ll also want to figure out if you want to a variable or a fixed-rate loan.
A Variable-Rate Loan depends on your credit history. The lender will use your credit history to determine a benchmark interest rate to charge you. This means that the benchmark interest rate can either increase or decrease depending on if your credit history changes. Your monthly payments can also be affected.
A Fixed-Rate Loan also calculates an interest rate depending on your credit history, but once you take the loan out, the interest rate will not change.
Variable-Rate loans usually start out with a lower interest rate compared to Fixed-Rate loans, but are the more riskier option if you can’t pay off your loan quickly since interest rates can increase in the future. Fixed-Rate loans are definitely the less risky option, and can help you plan for consistent monthly payments.
4. Get Prequalified For A Loan
Getting prequalified for a loan can help give you an idea of what your loan and payments may look like so you can be better prepared. Many lenders will offer this online and will do a “soft credit check” meaning that it won’t harm your credit score, so it’s smart to take advantage of this!
You’ll need to be able to provide information such as your social security number, income, employer, previous addresses, date of birth, and other monthly debt payments you currently owe.
However, sometimes you might not be able to get a prequalified loan if your credit score is too low, have too little income, no work history, or too many other recent credit applications.
5. Compare Offers From Various Credit Lenders
Once you get a few different prequalified loans, you’ll want to compare them and see which lender is the best one for you. Take the loan amounts, monthly payments, and interest rates into consideration. You also might want to check out any local banks or credit unions, which usually can offer lower interest rates, especially for individuals with poor credit scores. Credit Unions are generally better for small loans, while bigger banks like Wells Fargo or Citibank are better for unsecured larger loans.
6. Consider Joint Loan Applications With A Cosigner
If you think you have low chances of getting approved for your loan because of poor credit or a low income, you may want to consider submitting a joint application with a cosigner with good credit. A lot of lenders are more inclined to give out loans to someone with poor credit if there is a cosigner that is willing to also put up their line of credit. Generally, you’ll want this cosigner to be a relative or close friend since they have to be willing to share your debt. Both you and your cosigner are equally responsible for paying off the loan.
7. Complete Your Application
After you figure out which lender to go with, it’s time to apply for the loan! You’ll need to submit proof of identity (passport, driver's license), proof of address (copy of lease or utility bill), and proof of income (W-2, pay stubs). The bank will then take out a hard credit check and once approved, you’ll be able to receive the loan in about a week.
1. https://www.credible.com/blog/personal-loan/get-personal-loan/ 2. https://studentloanhero.com/featured/qualify-for-personal-loan-without-collateral/ 3. https://www.nerdwallet.com/blog/loans/cheap-personal-loans/