Are you looking for the easy way to apply and get a personal loan online? This post will guide on the required step by step guide you on the quickest to getting the cash you are looking for at your disposal at a very good possible rate. But before we proceed, let’s quickly dive into what a personal loan means.
What is a Personal Loan?
A personal loan is sometimes regarded as a short-term loans or emergency money you borrow for just any purpose such as sudden medical bill, paying off debts, student loan, renovating a home, vacation and many more. You can apply and get this money from private lenders, credit unions and from banks. This money usually comes with interest especially on monthly basis with time which can take up to two to five years. One of the benefits of personal loans is that they are not backed with collateral which makes them unsecured.
Benefits of Personal Loan
- Most personal loans are unsecured loans which means they do not require collateral
- You must pay back over a set period of time usually two to five years
- Best personal loans solely rely on your creditworthiness and the reason you need the loan.
- You can use personal loan for anything such as emergency doctor bills, debt consolidation, unexpected family needs and lots more.
- The interest of the personal loan you pay back come as annual percentage rate (APR) which ranges from 6% to 36% depending on your creditworthiness, debt, credit score and income reports.
What You Need to Know to Qualify for a Personal Loan – Step by Step Guide
There are various criteria to qualify for a personal loan. For instance, if you want to get an auto loan with a lower interest rate, home equity, or you want to renovate your house or purchase a car. Then, unsecured personal loans are the best match for you. This is because it majorly depends on your creditworthiness. Below are some factors you must consider to qualify for a personal loan.
Know Your Credit Score
Credit score is a major requirement when you want to apply for personal loans since it depends solely on your creditworthiness. However, if you do not know your credit score and you want to apply, you can get your updated credit reports from the three major credit reporting bureaus which are Equifax, TransUnion and Experian before considering applying so that you can know you fate.
The AnnualCreditReport.com also offers you a free credit reports from one or more of the major reporting bureaus when you visits its official website. You can also get a free monthly credit score from each of the major credit reporting agencies using various credit cards, loan companies, and other financial services that are available online. A website like Credit Karma offers free credit score reports. You can also get from other online vendors but you will have to pay in some cases.
However, since you now know that your credit score is one of the major requirements in getting a personal loan. You must know that the higher your credit score, the higher chances you have to get approved for personal loan with a better and lower interest rate.
Investopedia reported the following average best personal loan APRs via LendingTree and loan amounts based on credit score for April 2021.
|Credit Score||Best Average Loan Amount||Best Average APR|
Know the Amount You Want to Borrow
It is important you know decide on the amount you want to borrow so that it has help have an idea of the interest attached to it. Keep in mind that the original loan is not the only one you are borrowing, in other words you have to also put the interest into consideration when you want to pay back. However, borrow what you can pay back in return plus the interest inclusive.
Know where to Get a Personal Loan
You can personal loan from two main sources which are Banking Institutions with license or charter and Non-banking Institutions.
These include banks and other banking institutions with license or charter such as credit unions which are controlled by the Federal Reserve, National Credit Union Administration (NCUA), Office of the Comptroller of the Currency (OOC) and the Federal Deposit Insurance Corporation (FDIC).
Most times when people think of personal loan, the first places they go to are local banks and credit unions. This is because application process will require a loan officer to guide you such that it can make you have a smooth application process. For credit unions, the application qualification procedures appear easier and flexible than that of banks and come with lower interest rate than that of local banks. But the downside with credit unions is that you must be a member in order to apply and get qualified and one of the fascinating things about getting a personal loan at credit unions and banks is that you are not going to be charged any origination fees.
Non-Banking Financial Institutions
Some Non-banking financial companies (NBFC) also personal loans but the major difference between them and other banking financial institutions is that NBFI do not accept deposits. Some of these NBFI companies include Peer-2-peer (P2P) lenders, insurance companies, brick and mortar finance companies, non-bank entities and Payday lenders. Take for instance, you a get a very low interest rates loan from a P2P lenders only if your credit score is good but if you have bad credit, you will get higher rates even more than bank rates. Payday loans are danger zone bad loans because of its high-interest rates.
Find Out if You Qualify
One of the ways to know if you qualify for a personal loan is by checking your eligibility status. You can do this by visiting your lender’s website or contact the lender via phone to know if your financial information makes you qualify or eligible. When you put a call through, you can ask whether there is a minimum required credit score and the income threshold. Ask if there a required minimum length of credit history— for the common one, three years or more is available — and what is considered an acceptable debt-to-income ratio.
If you are able to know eligibility or ineligibility status especially for the loans you are not qualified for, now it is now time for you to be on the search for lenders who will give you prequalification or preapproval with soft inquiry. However, the preapproval or prequalification does not guarantee you that you will the loan when you apply but on the exception that your financial information deem fit among the qualified people he had lent money to in the past.
When you get prequalified, this literally means you have filled a short form online where you supplied information which includes your name, address, the amount you want to borrow and your income. During your prequalification process, the lender will conduct a soft inquiry for you and then notify you after the inquiry. This soft inquiry maybe sometimes reports from your credit score. Once he has done the soft inquiry, you will get a notification which may come with seconds or couple of days in some cases which will tell you if you have or have prequalified for a loan.
Find Out the Information about the Loan
If you already got a prequalification from the lender, now is the best time to check for very information you need in your preapproval letter. You can also revisit the lender’s website to find the following information below.
- Type of interest: you must check for the differences in rates especially to know if the interest rate is fixed or variable.
- Electronic Withdrawal: you have to know if the monthly repayment plan is going to be a compulsory automatic withdrawal method or optional. If the electronic withdrawal is optional, will you get a lower interest if you agree to the terms of electronic withdrawal.
- Secured or Unsecured: check out for details of the loan if the loan is going to be a secured or unsecured loan. For a secured loan, what is the collateral required?
- Fees and Penalties: are there any fees or penalties attached to late fees or missed payment. Does the loan have origination fee or any other charge fee?
- Prepayment Penalty: Will I pay for penalty for my loan early?
- Expected Loan Amount, Monthly Payment, APR, and Loan Term. It may or may not be exact, but it will give you something with which to compare other preapproved loans.
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Apply for the Loan
Once you have acquired all the required information you need and you are satisfied. You can now apply for the loan. You can also make use of the “rate shopping” option. This gives you access to apply using more than one lender which gives you the chance to gather your loan application with 14 to 30 day period. With this, you are open to multiple inquiries that will be treated as one which will have less impact on your credit score.
During your application process, you will be required to have some important documents which include Social Security number, housing cost, debt, evidence of income (w2 forms, pay stub), and an official ID. You can find the list of the documents needed in your preapproval letter.
Close the Loan
Once you have gotten approval for the loan and you have been credited with funds. Kindly pay back and then close the loan. Keep in mind that approval and funding times depends on your lender. For some online direct lenders, the approval time can be from three to seven days and their funding time after approval can be from one to seven working days while the approval time for some banks and credit unions vary from the same day to several days and funding time can also vary from same days to several days.
Frequently Asked Questions (FAQ) about Personal Loans
Where are the Places You Can find a Personal Loan?
You can get a personal loan in the following places below.
- Online loan lenders
- A family or friend
- From an investor (for private loan)
- Your local bank or credit union
- Peer to peer (P2P) lenders online
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What are the documents You need for a Personal Loan?
You need the following documents for a personal loan.
- Social Security number,
- proof of income (w2 forms, pay stub)
- An official ID
- Housing cost,
- Debt details
What Are the Different Types of Personal Loans?
The different types of personal loans are:
- Unsecured loans and secured
- Co- applicant loan: a loan you need a co-applicant most times with high credit score to qualify for
- Fixed and variable rate loans
- Debt-consolidation loan: rolling multiple debts into one new loan
Are Personal Loans Secured or Unsecured?
Personal loans are literally unsecured which means that you don’t need have collateral such as your house or car to get the loan. However, you need other requirement like credit score, income information, financial history and the other lenders requirement you must meet. But on the other hand, Secured loans require you to have collateral like cars, houses, and other properties before you can secure the loan.
Can I Get Pre-Qualified for a Personal Loan?
The answer is Yes. This is because you can usually get pre-qualified for a personal loan within a few minutes online. But this is dependent on your personal information supplied during the application process to the lender which includes your income, address, amount of the loan you want to borrow, and other considerations of the lender. This tells you the type of loans you are likely to qualify for and then grants you access to compare other lenders for the best rates and terms. Keep in mind that a pre-qualification means that doesn’t mean you will get the loan even when you’re likely to qualify for the loan.