How to Get a Personal Loan
- June 14, 2017
- Posted by: Ashley Sutphin Watkins
- Category: Personal Loans
At a Glance:
Taking out a personal loan is similar to getting other loans. You need to find a bank or lender that you like and then submit some information. Many financial institutions will pre-approve you for a loan before requiring a full application and hard credit pull.
A personal loan is a type of financing you can obtain from banks, credit unions, and online lenders. Personal loans are term loans, meaning you borrow a lump sum up front with a fixed rate, then you pay back fixed monthly payments for the loan term. With personal loans, repayment terms are usually anywhere from two to seven years.
There are different reasons a person might research and apply for a personal loan and loan amounts vary from a few thousand to hundreds of thousands of dollars. Some common uses of a personal loan include:
No matter the reason why you might want a personal loan, the process of getting one isn't too complicated.
How Do You Take Out a Personal Loan?
There are different ways you can get a personal loan. One of the most common options is to use an online lender. Online lenders tend to make it fast and easy to apply for a personal loan and receive the funds directly into your bank account within a few days. Furthermore, most online lenders will first do a soft credit inquiry to see if you are pre-approved, allowing them to show you estimated loan offers and interest rates. If are like the offers, you can then go on to start the full application process for final approval.
There are other personal loan options as well, including banks and credit unions. If you work with a traditional lender, you may have to go to the bank or credit union in person to get the loan, though some also offer online loan applications.
When getting a personal loan, you need to do calculations to figure out how much you will need. You don’t want to take out more than the amount you need because you’re going to have higher monthly payments and will ultimately end up paying more in interest for it.
What Do You Need to Get Approved for a Personal Loan?
Most of the best personal loans are unsecured, meaning you don’t need collateral to get approved. The first step in the process usually involves a checking your credit report. Even if your credit check shows your credit history isn’t perfect, you may still be approved, but you likely won’t be eligible for the lowest possible interest rates.
>> Read More: What Credit Score Do You Need for a Personal Loan?
In fact, you may want to check your credit score before you even start applying for a personal loan. Most traditional lenders consider an good credit score to be anywhere from 739 to 850, but a lot of online lenders advertise personal loans for people with fair or bad credit.
>> Read More: Personal Loans for Bad Credit
If you don’t qualify for a personal loan because of your credit score, you might then apply for a secured loan requiring collateral. Another option would be applying with a co-signer.
If you have existing debt - especially credit card debt that you don't plan to pay off with your personal loan - it’s going to affect your chances of getting a personal loan. Lenders look at your credit utilization rate, and it’s also a big factor in your credit score. If lenders see that you already have a lot of other debt that requires payments, they may be wary of lending you money thereby putting you more in debt.
Most lenders will also ask for some kind of identification such a passport or driver’s license, and for a personal loan, you will usually have to show proof of income. You might have to show your W-2s, pay stubs, tax returns, or maybe bank statements. You may also have to verify your address and submit your social security number.
How Long Does It Take to Get a Personal Loan Approved?
The time it takes to get a personal loan approved varies based on the lender. If you apply for an online loan, they may issue an instant decision as to whether or not you’re approved and then your loan may be disbursed directly into your bank account in a few business days or even within the same day. The process typically shouldn't take any longer than a week to complete.
Getting your personal loan money can take longer at a traditional financial institution. It may take several days for an approval to be issued, and even longer for the funds to be disbursed.
Before accepting a personal loan, consider the fine print. For example, are there loan origination fees, prepayment penalties, or other hidden fees?
>> Read More: Common Personal Loan Charges and Fees
An unsecured personal loan can be a good financing option if you’ve run into an unexpected expense or have a large purchase to fund. It is important to compare different options before getting a personal loan to see if you could be approved for a lower interest rate somewhere else. It is also a good idea to make sure you’re not going to pay more in interest than you would with another option, such as a credit card or home equity loan/line of credit.
Author: Ashley Sutphin
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