For a long time now, people have been borrowing money from other people. Today, though, the process is much more standardized through banking institutions. If you have been thinking about getting a personal loan but have no idea what you are doing, here is everything you need to know.
When you get a personal loan, you borrow money from the bank, credit union, or online lenders. You repay this amount through a series of fixated payments every month. This is usually done over the period of two to five years, depending on the term of your loan. Lender rates for a personal loan usually range between 6%, all the way up to 36% APR.
Personal loans tend to be popular because they are unsecured, meaning there is no collateral to back them up. When you back up a loan with a house or a car, the interest rates will usually be lower, but you risk losing your collateral in the event of a default. The money secured from a personal loan could be used for any reason.
How to get a Personal Loan?
The first thing you need to do is check your credit score, considering it strongly influences your chances on getting a loan. A strong credit score, usually 690 or higher, will give you a much better chance of approval, and a lower interest rate. Your score is usually divided into four main categories:
- Excellent – higher than 720
- Good – 690-720
- Fair or average – 630-689
- Bad or poor 300-629
Based on your credit score, you will be able to estimate the interest rate and principle payment of your loan. An online personal loan calculator is a great tool to use to help put the numbers into perspective.
A soft credit check is usually a good place to start when considering a personal loan. You can check your credit score online through Credit Karma. You will need to provide:
- Your Social Insurance Number
- Confirm your monthly debt obligations
- Proof of income
- Provide details of your employee and employment history
- Your address
- Contact information
- Date of birth
- Sometimes, your qualifications
Once you have your credit score, you can apply for a personal loan online. Fill in and complete the short form with your details and credit score to see options of lenders that will likely approve you based on the information provided. You can be approved for a personal loan from numerous lenders within minutes!
Things to do before getting a loan
First, always compare your offers with other credit options. Sometimes it is easier to do this. For example, see if you qualify for a 0% credit card, which is very likely to happen if you have good credit. A credit card with no interests is the cheapest option. Also, you may want to consider a secured loan, which will require some sort of collateral but will provide for a lower APR as compared to an unsecured loan. If your credit score is not great, you may also want to consider a guarantor loan. This will allow you to obtain the funds you need with the help of a co-signer. The credit history and income are considered for both the borrower and the co-signer. This can significantly improve your chances of qualifying for a loan and provide terms that might be more beneficial.
Before you sign off on the loan, always remember to read through the Terms & Conditions. It is imperative because it outlines the terms of the loan and penalties that you are bound to if you fall behind on a payment or are unable to pay back the borrowed sum. There may also be an exit fee associated for early repayment. In general, it will reconfirm the details of the loan and authorized repayments as per agreement.
Once your loan is approved and processed, it will be reported to the credit bureau. Ongoing timely payments will also be reported to the credit bureau and help reestablish your credit score. Therefore, be sure to agree on a payback date that is most suitable and manageable for you.
What do I need to apply for a loan?
Once you have evaluated lenders and selected one that works best for you, you can apply for the loan, to do this you’ll probably need the following documents:
- Identification: passport, driver’s license, etc.
- Proof of income: pay stubs, bank statements or even tax returns
- Verification of address: copy of lease or utility bills
The lender will process a hard credit check which will drop a few points of your credit score. Once the loan is approved, you will receive the funds you need. Click through the link below to apply for an online personal loan today!