If someone asked you, “what is a personal loan?” you might feel like you’re well-equipped to answer that question. But the truth is, it’s a fairly broad category of financial products that can have all sorts of different uses. There are plenty of different types of personal loans out there that can help you with things like buying a house, buying a car, paying for emergency expenses when your savings are low, and so much more. So, like we said, it’s a broad category.
Having said that, you might have a good idea of what a personal loan is and how it can help you, but that’s only one part of the puzzle. The next step is to understand how to apply for a personal loan. Where do you start? Where can you get one?
Before you begin the actual application process, there are certain steps you’ll need to take to prepare yourself. Once these are done, you can start to move through the rest of the process.
So, what do you need to apply for a personal loan? We’re going to walk you through some of the general steps you need to take the next time you find yourself in need of some extra cash!
1. Assess your Finances
If you apply for a personal loan, get approved, and aren’t able to pay back what you owe, nobody wins. From your end, you’ll likely need to pay late fees, you can affect your credit score for the worse, and you could fall into a cycle of debt.
From the perspective of the financial institution, they won’t be getting their money on time and they may have to enlist the services of a collections agency.
So, while it’s true that a financial institution will generally be fairly thorough in assessing your financial standing before approving your loan application, it’s still a good idea to make sure you have a clear idea of where your finances stand.
The first thing you should do is to figure out the amount of money you’ll need for your purposes. You should then take a look at your budget to get an idea of what you might be able to afford. Don’t forget that with some loans, there’ll be origination fees that you’ll need to pay, so you’ll need to incorporate that cost into your planning, on top of your regular payments.
If you need a little help, go online and look for a simple loan payment calculator to help you figure out what you’ll be paying. This might be a little tricky if you don’t know the interest rate of your loan or the loan term, but you can play around with this tool to get a general sense of what you can and can’t afford, as it may be helpful.
2. Look at your Credit Score
One of the biggest factors that financial institutions may consider when looking at your loan application is your credit history. This will help them get a better sense of what type of borrower you’ve been in the past, and what the likelihood is that you’ll make all your payments on time. Generally speaking, your credit score is also going to affect things like the interest rate of your personal loan, loan amounts, and more.
So, for these reasons, it’s important to know what your credit score is as you go into the loan application process. To get a hold of your score, you can:
- Check the statements of your credit cards, as some organizations include this information.
- Purchase it from a major credit bureau.
- Find it for free online.
On top of checking your credit score, you should also get your hands on a copy of your credit report. Credit reports show you the specific entries that make up your credit history. Reviewing this can give you a chance to spot any potential errors that could be affecting your credit score. While a mistake could just be a simple error, it could also be a red flag for identity theft. In either case, you’ll want to investigate the mistake immediately to get to the bottom of it.
The good news is that credit reports can be accessed for free from major credit bureaus – Equifax, TransUnion, and Experian – every year. Visit AnnualCreditReport.com to get a copy of your report.
3. Review your Options
After getting a better idea of where you stand financially and what your credit score is, you can start to take a look at the types of personal loans out there and figure out what might work for your situation. You’ll also need to assess the different financial institutions that you come across to see which one might be a good fit.
The first thing you can do here is to narrow in on financial institutions, whether those are traditional banks or other types of lenders, who offer loans that may be available for your credit score. For example, if you have excellent credit, then you may have more loan options available to you. On the other hand, if you have a fairly low credit score, your time might be better spent looking at loans for bad credit.
You’ll also want to decide whether applying for a loan online or in person makes more sense for you. You might prefer to submit your application in person, but if getting to a lender in person is a challenge, it may be easier for you to apply online.
4. Organize your Personal Information
If you’re wondering, “what do I need to apply for a personal loan?” there may be more than one answer to that question. After all, different financial institutions may require different information from you. Having said that, there is some basic personal information that many organizations will need from you, so in order to expedite the loan application process, it helps to have this info at the ready. It can include:
- Employment and income information
- Contact information
- Social security number
- Proof of assets
- Bank statements
5. Choose the Right Loan Product for You
Now that you’ve narrowed down your options of lenders and you have your personal information organized, it’s time to start applying!
Depending on which financial institutions you’ve selected, you may be able to go through the entire application process online and from the comfort of your home, or you may need to find the time to go to a storefront location.
You will likely need to provide your contact information, your income, and the other personal info mentioned earlier, in addition to the amount of money you’d ideally like to borrow.
If your application is approved, the loan amount may vary depending on your qualifications among other criteria. Make sure to go over the conditions and terms of your loan, which will include things like the interest rate, loan term, and any additional fees you might be required to pay.
Once you’ve accepted an offer, the amount of time it takes for you to get your money will vary. It may take a few days, or you could even get the money deposited into your bank account as soon as the same business day. This will depend on the financial institution providing the loan as well as your bank’s policies.
Make sure you keep a close eye on when your payments are due and see if you can set up automatic payments to avoid missing them. You can also try to pay off your loan early if you have the room in your budget and if you won’t be charged a pre-payment penalty.
Consider These Steps Before Applying for a Personal Loan
Depending on your needs and the types of personal loans you’re looking at, there’s going to be some variance to the application process. It might take a little longer with some lenders than others, you may be asked for different pieces of information, or you may have to apply in person or online. Whatever the case may be, there can be multiple steps to applying for a personal loan. But the truth is, they’re all important and should have your full attention.
The key elements to applying for a personal loan are to be patient and thorough as you navigate through the process. After all, any big decision involving your finances can have a significant impact on your life, so you’re going to want to be careful.
We hope this guide has given you a useful framework to follow as you try to get the money you need!