Personal loans are one of the most common forms of loan available to consumers in the United States. They’re used by millions of Americans to finance a range of different things. If you’ve decided that you want to apply for personal loan, then you’re probably well aware of many of the key features.
But the application process can still seem daunting. Many people are worried about choosing the right lender to work with. Others are scared that they might get rejected and further create financial problems for themselves. Whatever your concerns are, they’re legitimate. You should always approach any financial arrangement you make with as much caution as possible. You don’t want to rush into a decision that ends up costing you in the long run.
This guide will give you a complete walkthrough the application for personal loans. It will also provide you with advice on how to best prepare yourself for your application. Make sure to read this entire guide before you apply for a personal loan.
Secured Vs. Unsecured
The first step you should take in the application process is to decide whether you want a secured or unsecured loan. When you apply for personal loan, it can’t be stressed enough how important the difference between these two forms of finance is. We will explore each of the loans in more detail below. Make sure you’re extremely aware of the different details of each of these types of loan.
Secured loans are loans that are secured against the value of an asset. For example, you might use your home to secure a loan. If you end up defaulting on the loan, the lender will be able to seize the asset you have secured it with to try and get back their money. The major downside to this type of loan is that you can end up losing valuable assets if you default on the loan that you get. On the other hand, interest rates on this type of loan are much lower than with unsecured loans. Banks are more likely to give out cheap finance if they know that they have something to secure the loan. These loans are also easier to get as banks know they have less risk.
Unsecured loans are the most common form of personal loans. These loans are not secured against anything. If you are to default on the loan, the bank will not be able to reclaim your house or any of your other assets. The major downside to this is that interest rates are much higher. Banks don’t want to take risks on people who they aren’t secured against. If you’re someone who worries you might not be able to pay back the money you borrow, this is definitely the better option of the two. You’re not putting your home or other possessions at risk.
Find the Right Lender
The next step you should take involves finding the right lender to use. When you apply for personal loan, you might think that it doesn’t matter which lender you use, but this is not the case. Just because someone has lower interest rates, doesn’t mean they are the best option. You should be willing to pay a bit more to work with a better lender.
To find the right lender, you should start by making a short list of the best lenders you have access to. You can find great lenders online without having to make too much effort. After you do this, you should begin to cross reference your research with consumer watchdog groups. These watchdog groups review companies and allow previous clients to review the way that they experienced their services. It’s a great way to get a recent update on the performance of a company.
The best websites for this type of service are Consumer Affairs and the Better Business Bureau. They both do an awesome job of keeping up to date with companies and how they are performing with customers. You should truly value the feedback of past customers. If a company has a lot of dissatisfied borrowers, there’s a high chance you will be one of them in the future if you opt to work with them!
Compare Interest Rates
You should then begin to compare the different rates that each lender is offering. The one problem with this is that these interest rates are often given in ranges, meaning you don’t know the exact rate until you’ve already applied for the loan. This is a massive pain considering it damages your credit score every time you apply for finance. Nonetheless, you need to make sure you have a reasonable understanding of what the interest rate will be before you apply for personal loan.
Differences in interest rates seem small when you view them without context. But when you’re paying back a loan over multiple years, it can really add up. But it’s not just interest rates that determine the true cost of your loan. There are plenty of other fees and charges that lenders attempt to neglect to tell you. That’s why it’s important to ask lenders for a full breakdown of costs prior to making any decisions. In fact, we recommend that you ask your lender for a total cost of the loan. It makes it much easier to understand the true burden that you have.
Prepare Your Credit Score
Another step that you should ensure to take before you apply for personal loan is to prepare your credit score so that it is the best it can be. You want to approach the loan application process with the intention of being accepted the first time you apply. Each time you apply for a loan or credit card, points are taken off your credit score. This means that the more times you’re rejected, the more likely you are to continue to be rejected.
It’s really important that you make as much effort as possible to nail your first loan application. Fortunately, there are a few simple things you can do to make sure that your credit score is as high as possible before you apply for personal loan. Below are the steps you can take.
Check Your Credit Report
This may seem obvious, but you should always check your credit report before you start your loan application. Even if you know your credit score, you might not know what’s on your credit report. There are millions of Americans that have false or mistaken issues on their credit reports. Misreporting is a lot bigger of an issue than you think. If you have a sub-par credit score, there’s a high chance there’s something on there that you may be able to fix.
If you find that there are problems with your report, request to the reporting body that they remove any of the items that you find problematic. If they aren’t willing to do so, then contact a credit repair agency and ask them if you think they would be able to help you. Remember, credit reporting bodies are required by U.S. law to give you at least one free copy of your credit report every year – don’t hesitate to ask them for it.
Pay Off Credit Card Debt
One of the major contributing factors to your credit score is how much outstanding revolving credit you have on file. In fact, in some cases this makes up to 30% of your score. The good news is that this data is updated every month. Credit reporting bodies typically look at your outstanding debt as a ratio. Meaning the hire your credit limits, the better your debt ratio is in most cases. It’s a percentage of how much debt you have compared to your limits.
Paying down these debts can help you improve your score drastically. If you can afford to pay off some of your credit card debt before you make a loan application, it can greatly increase your chances of being approved for a large loan. You should not underestimate how much this can change your score – depending on how much you can payoff, you might see an increase of over 80 points.
At the end of the day, it’s always important to be realistic. Don’t apply for personal loan from a company that is obviously not going to lend money to you. Most lenders will advertise the types of credit scores they’re looking for. If you’re way out of this range, there’s no point in applying – it will only damage your chance of being accepted in the future.
If you can’t find a lender’s range online, head to some different finance forums. Many borrowers will post what credit scores they were approved with from different lenders. It can be a good way to get your finger on the pulse of the lender.
Get Your Cash and Make Your Payments
Once your loan is approved, you will typically get your cash transferred to you within 24 hours. This means that you’ll have direct access to the capital you need in less than a day. It truly is amazing how fast modern lenders can get you the money that you need. Most personal loans do not require you to spend the money in any particular way – this is not a mortgage. This is why it’s very important to make sure that you are disciplined with the money you receive. It can be very easy to end up spending it for the wrong reasons.
In addition, you should also make sure to be fully aware of when your payments are. If you miss a payment, you will most likely have to pay a late fee. In addition, it will be marked as a missed payment on your credit report which will lower your score. Personal loans are great because they’re term loans – this means that they’re much easier to pay off. This is a good form of loan for someone who typically struggles to keep financial commitments. It forces you to be disciplined with your payments.
Apply for Personal Loan Online
We suggest that all our readers use online applications to apply for their personal loans. You can still apply for personal loans through bank branches and lending stores, but this process is much more complicated and takes significantly more time. If you want to avoid waiting days or weeks for a lending decision, there’s no point applying in a physical branch. Online applications only take a matter of minutes, and they’re perfect for someone who doesn’t want to waste their time having to drive to a bank to get the financing they need.
You can input all your personal information online directly through a secure portal. This also greatly reduces the amount of risk you have for being a victim of fraudulent behavior. Many individuals have their social security numbers and other personal details stolen when they fill out paper applications. Using an online server is much safer – many large lenders use encryption software to make sure that all your information is safe.
While it is extremely easy to apply online, remember that each application will damage your credit score. Don’t apply for multiple loans at once. This will damage your score and result in you most likely being rejected for any type of finance in the near future.
Applying for personal loans has never been easier for American borrowers. You can head online, apply for a loan, and have money in your account within 24 hours. But the entire process should still be approached with caution. If you’re going to apply for personal loan, you need to make sure you’re ready. You don’t want to get rejected if you don’t have to.
Use the tips that we’ve provided in this article if you decide to apply for personal loan online. If you follow the steps we’ve provided, you’ll be in great shape to receive an approval for your personal loan.
Remember, if finance is used responsibly, it has the ability to improve your life dramatically. As long as you know what you’re doing with the money you’re borrowing, it can help you plan for the future or fix current problems. So, what are you waiting for? Apply for a personal loan online today!