In the past, applying for a personal loan was a strenuous affair, with potential borrowers having to rely on banks or unregulated financial institutions in order to secure funding. However, with the rise of online personal loans, it has become much easier for potential borrowers to find suitable personal loan offers from recognized lenders. This article will explore how one gets a personal loan with a step-by-step guide to follow.
How Do I Apply for a Personal Loan?
First of all, you will want to explore your reasons for applying for a personal loan. Loans should only provide a source of finance if necessary.
During the application process, most lenders will ask for a valid reason as to why you need to borrow money from them. However, the list of options usually covers a wide selection.
Once you decide that you require some financial support, you must determine the exact amount needed to complete your application. The loan amount usually comes under brackets of each total, for example, $10,000 - $20,000 and so on.
Now you can begin the personal loan process. You may wonder, “Where do I even get started in attaining a personal loan?” It's really not that difficult as you can see in the following 5 simple steps for personal loans:
Step 1: Check Your Credit Score
Before you waste your time browsing the internet for lenders, you should check your credit score to see where you stand. Your credit score is often the main factor in determining the conditions of your loan including the APR, term length, and the total amount available.
You can access free credit score services online that provide a soft credit check. This process will not affect your credit score.
In general, credit scores fall into the following categories:
• 720 and higher: Excellent credit
• 690-719: Good credit
• 630-689: Fair or average credit
• 300-629: Bad credit
For a personal loan, many recognized lenders require a good to excellent credit score. However, some banks and financial institutions will consider borrowers with no credit or poor credit. They often take into consideration other financial aspects such as how much money they have made in the last two years, rather than judging customers on their full credit history.
Step 2: How to Get Pre-Qualified for a Loan
Once you know your current credit score, you can begin exploring your loan options. These days, prospective borrowers have many options for securing a loan.
Rather than spending time searching the web for each, comparison sites come in handy. These services will shop around for different loan offers automatically, eliminating the need to fill out multiple applications for a personal loan. Simply input your credit score and what benefits you are looking for and the most suitable options will show for your circumstances.
Before you accept an offer, you must first pre-qualify. Many lenders perform a soft credit check during pre-qualification which doesn’t affect your credit score. You will need to provide some personal and financial information during pre-qualification including the following:
• Social security number
• Monthly debt obligation
• Employer information
• Contact information
Supporting documents must also be provided for evidence. These important documents usually demonstrate proof of income by using a bank statement or salary slip, proof of address, and also photographic ID. Without these, the lender may not approve you for a personal loan, as companies need to see proof of your identity and validate that you can indeed pay back your loan.
On the topic of eligibility, each loan company will also have different requirements, based on factors such as your credit score, your monthly income, and the state in which you reside. Furthermore, it's absolutely essential that you are at least 18 years old before you can access a personal loan.
Step 3: Choosing the Right Personal Loan Service
All lenders offer different benefits for their customers, so it's important to shop around to find the best company for you. At this point, you should read the terms and conditions of each loan to inform yourself of the policies and fine print. Once you have found the perfect lender for you, you can move onto the next step.
Step 4: Complete an Application Form
Once you have found a reputable lender with loan conditions that you understand, you can continue with your application and go on to signing your contract.
Both parties should have full transparency of all terms and conditions. At this point, a contract will be drawn up outlining all specifics. The contract should clearly outline the following:
• Total loan amount
• Payment frequency: Stating the frequency that the borrower must repay the lender (monthly, weekly, biweekly, etc)
• Repayment period: how much time the borrower has to repay the loan
• APR: The interest rate on the loan that the borrower must pay
• Additional fees, if any
• Consequences of late payments
Once the application is complete and confirmed, you can expect to see the funds in your account as soon as one business day after approval.
Step 5: Staying on Top of Your Loan Payments
You should have full clarity on the total amount of loan repayment each month with interest. In this way, you’ll know exactly what amount you owe to your lender each month.
Most loan companies also charge penalty fees for late or missed payments. For this reason, make sure to stay on top of your payments. You can set up automatic transfers or reminders so you never miss a payment.
Factors to Look Out For
When exploring your options for a personal loan, consider a few of the following elements:
Flexible repayment terms.Having the choice to pay back weekly or monthly may benefit customers, depending on their source of income and when they receive their finances. Also, some individuals find it easier to make payments weekly as the value seems less whereas others prefer one payment per month so that they can gather the total amount and stay on top of their finances on a monthly basis.
APR. Interest rates will apply to all personal loans but these vary with each lender. These rates can get extremely high. Customers could end up paying back a significant amount more than the initial loan or worse yet, end up in debt. So this is a vital factor to consider before committing to anything.
Loan maximum. Make sure you understand the maximum amount of loan you can borrow to ensure you have access to the full amount of financial help you need.
Now that you know exactly how to apply for a personal loan, it's up to you which company you go for. Remember to shop around and keep an eye out for low APR, high loan maximum, and flexible repayment schemes.
Depending on the reasoning for your loan and your financial circumstances, your options will vary. As with everything on the internet, personal loans have become more and more popular. That means, companies continue to improve their terms and rates in order to stay competitive. In order to benefit from the best rates, we suggest comparing a few of the top personal loan services.