Step 1: Know Your Credit Score
Although taking out a personal loan may seem like a helpful venture towards paying off your high-interest debt, complete home repairs, or even take a vacation, if you do not know your credit score, it can easily harm you.
Knowing your credit score is an important part of the process because ultimately, the lender will have to check your credit score before being approved. Therefore, checking your credit score ensures that everything is in order before applying for a personal loan. Most importantly, if you have any potential discrepancies, you can dispute them before you apply for a personal loan. The higher your credit score, the better chances you will have of being approved with a good interest rate.
Step 2: Calculate Your Debt-to-Income
Your debt-to-income ratio is calculated by taking the amount of debt you pay monthly including bills next to the income that comes in. With that said, it is always better to stay below a debt ratio of 30-40% to better qualify for a personal loan.
If you notice that you spend a lot of money on paying off your high-interest credit cards, taking out a personal loan at this time may not be the best option. However, the loan lender will also calculate your debt-to-income ratio and in the case that your debt is higher than a 40% average, they may give you a bit of insight as to what you can do next.
Step 3: Research and Read
The most important aspect of looking for a personal loan lender is to shop around for reputable lenders for your budget and credit score. There are credit loan lenders for all sorts income ratios and credit score, but always make sure you read the reviews and check their location. Applying online may seem like a beneficial option, but nothing is better than sitting down in person with a personal loan lender and asking them questions about the process. The questions below will you help you gain more knowledge about the personal loan process?
- Is there an origination fee?
- Why should you pick this financial institution to take out a personal loan?
- Do they work with your credit score?
- Are there late fees?
- Is the personal loan secured or non-secured?
- Is the interest rate fixed or non-fixed?