Are you curious about how to get a personal loan? There’s a lot more involved than simply filling out an application, such as:
- Examining your credit score before applying for a loan
- Comparing rates to determine which lender is right for you
- Getting pre-qualified to get a better idea of the potential loan amount, term and interest rate
- Review loan offers before completing an application to ensure you choose the best deal
What is a personal loan?
A personal loan is money that someone borrows from a bank, credit union or online lender to cover the cost of car repairs, debt consolidation, vacation or any other expenses. To repay the loan, the borrower makes monthly payments to the lender over a specified amount of time.
7 Steps to Get a Personal Loan
1. Take a Look at Your Credit Score
When processing your loan application, lenders will review your FICO credit score. Your credit score gives the lender insight into your credit health, which will ultimately help determine if your application should be approved or denied. You need to know how lenders view you, so take a look at your credit score before filling out any loan applications.
According to myFICO, FICO credit scores range from 300 to 850, with each score demonstrating to lenders how much of a risk you are:
- Poor: 300-579 (High risk)
- Fair: 580-669 (Moderate risk)
- Good: 670-739 (Moderate risk)
- Very Good: 740-799 (Low risk)
- Exceptional: 800-850 (Low risk)
2. Determine if a Secured or Unsecured Loan is Right For You
Is a secured or unsecured personal loan the right choice for you? Each type of loan has different lending criteria, and you should use these criteria to determine which option is ideal for your circumstances.
Secured personal loan: A personal loan that is secured using collateral, such as a vehicle or home. Unless the debt is repaid in full, this collateral is taken by the lender and is considered payment for the loan.
Unsecured personal loan: A personal loan that doesn’t require the borrower to offer collateral. Due to no collateral being required, an unsecured personal loan may carry a higher minimum credit score requirement.
Borrowers with bad or poor credit may find that a secured personal loan is the best option for them.
3. Compare Rates Between Lenders Online
Comparing rates from each potential lender before you apply for a loan will allow you to find a more affordable loan option. Your interest rate will affect the total cost of the loan you secure, so you will want to find a lender with reasonable rates for borrowers of your credit profile.
You don’t want to end up overpaying for your loan because you settled for a higher rate from one lender, when you could have secured a lower rate from a different lender.
4. Get Pre-Qualified for a Loan
Lenders are unable to offer loans to everyone who applies. Even if you believe you meet the lender’s requirements, getting denied is still a possibility. It is best to pre-qualify for a personal loan to see if the lender has any options available to you. Additionally, you’ll be able to avoid a hard inquiry on your credit report, which will happen even if your loan application is denied.
You should note that getting pre-qualified doesn’t guarantee that you will be approved for a loan, but it is another tool that will help you eliminate the lenders who are unlikely to you approve you for a loan.
5. Pick a Lender That Gives You The Best Deal
Once you have narrowed down the list of potential lenders, you’ll want to pick a lender that gives you the best deal. Since you should have already compared rates and gotten pre-qualified, you can easily determine which lender is the perfect fit by reviewing the loan offers presented after pre-qualifying with each lender.
Each loan offer you receive will provide details about the loan that you could potentially receive from the lender, including:
- Loan Amount
- Interest Rate
- Loan Term
- Monthly Payment
- Funding Time
6. Apply For The Loan
The personal loan application process has a number of steps that need to be completed. Along with submitting an application, you may be asked to submit various documents that will be used to verify the information you provided on your loan application, such as your monthly income.
Once your application, credit report and the required documents are reviewed, the lender can deny your application or approve your application and offer you a loan.
7. Accept Your Loan
Before accepting your loan offer, you’ll want to thoroughly review the loan documents provided by your lender. These documents will outline the terms of your loan, so it is important that you understand what you’re getting into. The final loan offer may be different from the loan offer you were originally presented with after you were pre-qualified, so be sure to pay close attention to information regarding the interest rate, payment due date, payment amount, payment options and additional fees.
Once you’ve taken a look at the fine print and have a clear understanding of your offer, you can go ahead and deny or accept your loan offer.
Tips For Applying For a Personal Loan
Here are five advantages of using a secured credit card to either build or rebuild your credit:
1. Review Permitted Loan Uses
Personal loan uses vary from lender to lender, so before applying, confirm that the lender of your choice will allow you to use the loan funds the way you intend to use them.
2. Apply With a Cosigner
If you are concerned about your ability to get approved for a loan on your own, apply with a creditworthy cosigner to increase your chances of approval.
3. Confirm If There Are Additional Fees
Lenders sometimes charge borrowers additional fees, such as application and late fees, so before applying for a loan, confirm how much you may have to spend on these additional fees if you select a certain lender.
4. Inquire About Unemployment Protection
A borrower may become unemployed during the loan term, and choosing a lender that offers unemployment protection can give you that peace of mind should you lose your job because payment will be postponed until you become employed.
A great example of this is Discover, who will offer these services and then, after several months of paying your bill on time, will return your deposit and graduate you to an unsecured card.
5. Inquire About an Auto-Pay Discount
Many lenders will offer a rate discount to borrowers who sign up for auto-pay and have their monthly loan payments automatically withdrawn from their chosen payment account.
Personal Loan Alternatives
A personal loan is a great way to get cash when you need it, especially when you can’t afford to cover an expense. Although this option is appealing, you don’t have to go this route.
Luckily, there are personal loan alternatives if you don’t believe it is the best option for your circumstances.
Payday loan: If you need a short-term loan, a payday loan is basically an advancement of your paycheck that you agree to repay the next time you are paid.
Auto-title loan: Similar to a secured personal loan, an auto title loan requires borrowers to use their vehicle as collateral to secure the loan, with the vehicle being used as payment if the borrower fails to repay the loan.
Credit card: Depending on the amount of money you need to borrow and when you would be able to repay it, a secured credit card or an unsecured credit card could be a way to get the cash necessary to cover your expected or unexpected expenses.
A personal loan can help you out when you need cash the most. Whether you need the money for home improvements, medical bills, or other expected or unexpected expenses, knowing how to get a personal loan is key to actually securing one.