Different types of loans exist and most of them are used for specific purposes. For example, mortgages are used to buy a home, car loans are used to buy vehicles, and student loans are used to finance graduate or college school.
But personal loans can be obtained and used for anything the borrower wants to do with it. The borrower can decide to use the cash to go on a vacation, buy a new gadget, pay their medical bill, renovate their homes, or even pay for their wedding.
These credits are also unsecured. This means you do not have to provide collateral to get them. You can read this article to learn more about unsecured loans.
In this article, we will share steps with you on how to apply for and get a personal lån.
1. Figure Out How Much You Need To Borrow
The first thing you need to do is find out how much you need. This is important because when money is borrowed, the original money gotten is not all that is paid back. You will also have to pay interest on the cash borrowed. Hence, borrowing more than you need will make you pay more interest than you have to.
On the flip side, if you apply for lesser money than is needed on your loan, you may have to look for another source when the need becomes more urgent. This can make you spend more money because emergency loans typically have a much higher interest rate.
2. Know Your Credit
Remember we said, this type of lån is usually unsecured, so it’s a risky venture for the lender. Due to this, the lender has to be sure that the borrower has the means and is responsible enough to pay back the money borrowed. This is where your creditworthiness comes in.
Lenders often check potential borrowers’ credits to determine the amount they can be borrowed and the APR they can be offered.
So, before you go shopping for loans, figure out your credit score by yourself so you can know the amount you qualify for. You can get your credit reports from any of the 3 major credit bureaus; TransUnion, Experian, and Equifax.
Doing this won’t have any impact on your credit score or creditworthiness because these actions are called soft inquiries. Soft inquiries are unlike hard inquiries which is what lenders do when people want to get loans from them. Hard inquiries usually affect the borrower’s credit score.
Most lenders and credit card companies offer their clients a free credit score from any of the major credit bureaus per month. Visit https://www.experian.com/ to learn more about credit bureaus and how they work.
3. Find Out Where To Get The Loan
Credit Unions and Banks Credit unions and local banks are usually where people first think of whenever they consider getting loans. If you choose this source, you’d have to meet a loan officer and have a one-on-one conversation with them.
This will make your experience personalized as the officer will assist you throughout the process of applying and ensure everything goes smoothly. When compared with other sources, banks’ qualification standards are relatively higher. But if you’re a customer at the bank, their standards may be made less strict for you.
Getting loans from a credit union is easier because their qualification process isn’t as rigid as banks’ qualification process. Their interest rates are also relatively cheaper. However, you have to be a member for you to even apply.
Neither of these two sources charges an origination fee, which is another benefit they offer.
Non-Bank Financial Institutions
You can also get personal loans from financial institutions that do not have banking licenses. These types of institutions include payday lenders, peer-to-peer lenders, insurance companies, online finance companies, as well as other financial entities.
The interest rates from this source are higher than that of sources with banking licenses. However, these institutions are more likely to approve your loan when your local bank won’t.
4. Find Out If You Are Eligible For The Loan
Check the websites of lenders you are considering and find out if you are eligible to get their loan based on your financial standing. If the lender has a minimum credit score requirement, figure out if yours fits it.
If you don’t have the prerequisite credit score, it may be time to boost or repair it.
5. Get Preapproved
Once you know the loans you aren’t eligible for, eliminate them from your option and focus on those you are eligible for. Most lenders preapprove borrowers using soft inquiries.
To get preapproved, you’d have to fill out an online form providing your name, income, amount to be borrowed, and address. You’d get notified (sometimes in seconds or days later) if you’ve been preapproved for the loan after the lender does the soft inquiry.
Getting preapproved isn’t an assurance that you’d qualify for the loan. It simply means that your financial standing fits that of people they had lent money to before.
6. Find Out The Loan Details
Since you’ve been preapproved, you have to figure out the details of the loan. Visit the lender’s website and find the following:
• Possible loan amount, loan term, monthly payment, and APR
• Penalties and fees
• Interest rate: find out if the loan carries a variable or fixed interest
• Prepayment penalty: some lenders may charge a prepayment penalty when you pay off the loan early
• Is the loan secured or unsecured? If it is secured, find out the required collateral
Once you have found out all you can about the loan, it’ll be time to søk lån (apply). Assuming you want to apply from multiple lenders, bunch the applications together into a fourteen to thirty days period. This action is called rate shopping. It’ll save your credit score from the impact of having several inquiries done within a short period because all the inquiries are going to be considered as one.
The preapproval letter usually states the documents needed for the actual application. So, submit the documents alongside your application then wait for the results.
If the loan gets approved, sign the necessary papers, and then get the funds. Of course, keep in mind that you’d have to pay the loan back according to its terms. If you do everything correct, leveraging loans can be very helpful to your financial situation!