If you’re thinking of borrowing money to meet a financial need, you can consider taking out a personal loan. This type of loan is typically unsecured, which means there’s no need for a collateral, such as a house or a car. But certainly, there are other points you should take into account before applying for one.
Credit Score
A strong credit score means it will be easier to qualify for a personal loan and getting a lower interest rate. If yours is hardly impressive, work on it before submitting an application. Start by making payments on time and avoiding maxing your cards. Request a free credit report as well and review it, making sure any errors are disputed.
Loan Prequalification
Through loan prequalification, you can see what what potential offers you might get. Online lenders usually perform a soft credit check during prequalification (don’t worry, this won’t affect your credit score), so get it early on in the process. During prequalification, you will be required to give the lender some essential personal information, such as your Social Security number, source of income, employer or business background, etc.
Fine Print
Like any other type of financing product, personal loans come with terms and conditions. Specifically, you’d like to watch out for a surprise APR (this should be the full cost of your loan, no additions), prepayment penalties, and automatic withdrawals (avoiding overdraft fees can be as simple as setting up a low balance alert on your checking account). Also make sure that the lender reports payments to credit bureaus, pays directly to creditors if you’re consolidating debt, and has generally flexible payment features.
Submitting a Personal Loan Application
Once you have compared a number of loan providers, you can pick one that is most suitable to your needs and preferences. The key requirements you will be asked for include proof of income (bank statements, W-2 forms, etc.), identification (state ID, driver’s license, etc.) and verification of address (lease contract, utility bill, etc.). The lender will also do a hard credit check, which will affect your credit scores a bit. Provided all needed documentation is in place and you actually meet the bank’s or lender’s requirements, the funds will likely be forwarded to your account in a week’s time.
A personal loan can help you during financial difficulty, but make sure you review your options thoroughly before making a choice. Hunt for the best rates, don’t borrow more than you actually need, and be conscientious when making your payments. And finally, make comparisons in order to find the best.