When you are struggling financially, considering getting a loan from a lender might sound scary. A personal loan is a debt that you have to carry for years and could affect your financial situation in the future. In this article, we will tell you how to get a personal loan.
It doesn’t have to be a difficult process, whether you want to consolidate your debt or need extra money for an unexpected expense. You will feel confident when you know how to get a loan and where to find it.
How to Get a Personal Loan
Getting a loan doesn’t mean just applying; there are some important steps that you should consider before and after submitting the loan application to make sure that you are choosing a loan that fits your situation. The six steps to learning how to get a personal loan are:
1. Determine How Much You Need
Before applying for a personal loan, you should know how much money you need to borrow. This is important because if you borrow less than you need, you might have to take another loan to fulfil your financial needs. This will consume your valuable time and can affect your credit score.
On the other hand, borrowing too much money can also create problems for you. There is a chance that you may overspend it, and the interest rate on the loan is also higher overall.
To know how much you should borrow, subtract the available savings you have from the cost of your anticipated expenses. Make sure that you have enough separate funds for the mortgage, bills, or other daily essentials.
2. Review Your Credit
There is no guarantee that you will accept a loan just because you apply for one. Every lender has different requirements and criteria, but most will review your creditworthiness before approving your application.
The most important point in the entire process of getting a personal loan is where your credit score stands. A good credit score can help you accept a personal loan quickly and may lower your interest rates.
There are various types of credit scores, but FICO credit scores are used to determine over 90% of lending decisions. Experian, Equifax, and myFICO.com are all sites where you can request your FICO score.
You should review your credit score after knowing your FICO score. Make sure that all of the information is accurate when looking at your report. The information could be your credit accounts listed, your personal information, and their statuses and amounts.
Although it is uncommon to find errors in reports, it is not impossible. You can request a free credit report from credit bureaus. You will get a free credit report every 12 months. You can improve your chances of getting selected for your loan by correcting mistakes on your credit report.
Some lenders offer personal loans to people with low credit scores, but the loan may have a high interest rate, extra fees, or unfavourable terms. In some cases, you will also need collateral. In this case, you’re considered a high-risk borrower.
It’s better for you to take steps to improve your credit profile, so wait until you don’t have strong credit. Taking steps to improve your credit profile can help you get a favourable loan with better rates and terms.
3. Shop for Personal Loan Rates
Once you know that you are ready to take a personal loan, it’s time to compare interest rates. Compare the rates that different lenders can offer you and choose which lender can offer you a low interest rate with favourable terms.
It’s important to compare rates like apples to apples. This means that you’re comparing interest rates for a personal loan with the same fees and terms.
The low interest rates can save you money on interest charges during the loan’s term. A longer repayment time can decrease your monthly payment, but you will pay more in interest over time.
Prequalifying for a Loan
Prequalifying for a loan can give you an idea of what rates you qualify for, lowering your credit score. For prequalification for a loan, you need to provide some basic information about yourself to the lender, such as your name, income, current debt, and social security number.
Lenders use this information for soft credit checks, also known as soft inquiries or soft pulls. A soft credit check will provide you with an estimated personal loan rate. Prequalifying for a loan doesn’t mean you are qualified for your personal loan; it is a better idea to know the rates at which you may qualify.
4. Fill Out an Application
Once you have narrowed down your options, the next step is to fill out the loan application. It depends on your lender whether you will fill out your application online or at a branch.
The information needed for your application depends on your lender. But generally, the information asked by the lender is:
• Basic information such as your name, date of birth, permanent address, social security number, and email address.
• Current employer’s address and phone number.
• Total income from all sources.
• A recurring address, like your mortgage or rent.
• Required loan amount and term.
• You also need to provide some verification documents to confirm the information you provided. The can be your:
• State-issued driver’s licence or social security card
• Bank account statements, tax reports, and pay stubs.
• Utility bills to verify your address
Be ready with these basic documents to show the lender on demand, and you can avoid slowing down your application process.
At this step, the lender will perform a hard credit check to check out your credit history. A hard credit check can affect your credit score, but this is an important step to getting a personal loan.
5. Add a Cosigner, If necessary
You can consider adding a cosigner to your application if you don’t have a strong credit history. A cosigner may able to obtain a personal loan with cosigner.
A cosigner acts as a secondary borrower on the loan. The cosigner is legally responsible for repaying the loan if you don’t make your payments on time.
Make sure that the cosigner has a good credit score and is trustworthy. The cosigner can be your parent, spouse, or sibling. The bank will evaluate your and your cosigner’s credit scores to make its decision and decide the rate and loan terms to give you. The purpose of a cosigner is to improve the chances of qualifying for the personal loan offer.
When you choose your cosigner, they need to prove the same information as you provided in the loan application. This can be documentation of their income and personal employment.
6. Wait for Approval
The lender will give you a decision within minutes after you submit your online application. If you submit a paper application to a brick-and-mortar financial institution, it can take your lender a few hours or days to review it.
The company may need additional documents for verification, which may delay the approval process. When the verification process is done, the lender will provide you with the loan agreement to read and sign.
Make sure you read the agreement completely, and don’t hesitate to ask the lender if you have any doubts regarding the loan agreement. If you don’t feel okay with the agreement, don’t sign on to it and back out. But if everything is as you expected, you can sign the agreement, and the lender will give you the loan amount.
Typically, you’ll get the loan amount all at once. Lenders give you the option to transfer the entire amount into your loan amount. You can also ask your lender for a check if you want. It can take a few days to transfer the loan amount into your account, especially if your receiving bank is different from the lender’s financial institution.
Where to Get a Personal Loan
You can get a personal loan through many platforms. The entire loan process depends on your credit history and the lender you choose. The common types of lenders are:
Online Lenders: There are many online lenders, such as SoFi. All loan processes are digital, such as prequalifications, loan offers, and applications.
Traditional Banks: You can get a personal loan at many national or local banks. If you prefer working with a live loan officer, these banks have multiple branches and in-person support.
Peer-to-peer lenders: Lending and borrowing can be done without going through a bank or financial institution. These lenders fund their personal loans by working with individual investors.
Credit Unions: Credit unions have physical branches, but they offer loans to only a specific group or community. Credit unions have fewer members, so they may provide better customer support.
Is personal loan right for you?
Whether a personal loan is good for you or not depends on your needs. Adding collateral to a secured personal loan at a low interest rate may offer you a better deal.
If you have decided to take a personal loan, keep in mind that you should have a plan to pay the monthly payments and long-term costs.
Frequently Asked Questions
How do I obtain a personal loan with poor credit?
People with bad credit can get personal loans from some lenders. First of all, you have to be sure about how much money you need to borrow. After that, you have to compare lenders and choose which one offers better rates. Once you select your borrower, the lender will perform a prequalification process, which will give you an idea of your rates. The documents required for the prequalification process include your name, date of birth, salary details, and many more.
You can also add a cosigner if needed. A cosigner is generally a secondary borrower on the loan, and the cosigner will also be legally responsible if the primary borrower fails to pay the monthly payments. A cosigner should have a good credit history.
When the prequalification process is finished, you can fill out the loan application. The document requirements for loan applications are the same as for prequalification documents. When your loan application is accepted, the lender will give you an agreement to read and sign.
In the last step, the lender will give you the loan money in a few days. You can transfer it directly into your bank account or write a check if you want.
Is it hard to get a $5,000 personal loan?
If you really know how to get a personal loan, a personal loan of $5,000 is not difficult for you. Many lenders provide personal loans of $5,000 or even less. If you want to avoid an origination fee while getting a $5,000 loan, a credit score of at least 660 is essential. But if you have a high credit score, then it’s easy to get a loan with a low interest rate. If you want to avoid an origination fee while getting a $5,000 loan, a credit score of at least 660 is essential.
How much credit score is needed for a personal loan?
Generally, you will need a credit score of 610 to 640 to qualify for a personal loan. If you have a good credit score, you may get a personal loan with low interest. But if you have a low credit score, it’s difficult to get a personal loan, and you will pay a high interest rate.