A Personal loan can help you with the expenses you may have. You may use such loans to cover credit card debts, moving costs, or even your particular family plans that need some funding. Typically personal loans can be between $1,000 and $50,000, although some lenders can offer more. You can pay them off over a few years with fixed payments.
These days personal loans are usually unsecured ones. Unlike secure ones, unsecured loans do not require you to show collateral (like a property or vehicle). But, still, you need to meet some requirements and you should do a few things before applying to a lender for a personal loan.
Personal Loans Credit Score Check
Credit scores are a shared system that financial organizations use. Your credit score tells lenders about your financial viability. This score increases as you pay your debts on time, and it decreases as you neglect your financial responsibilities or get under more debts.
We can divide the possible credit score range into some classes.
- Under 629: Bad
- 630-689: Average
- 690-719: Good
- Above 720: Excellent
With most lenders, you can get a free credit report and check where are you at on this range. If you have a bad score you are not very likely to get a personal loan from a proper lender.
If your score is lower than the average level, you may need to increase it by dealing with your debts or you will need to lower the loan amount that you ask for.
Personal Loan Pre-qualification
Before you actually apply for a personal loan, you will need to apply for a pre-qualification. This step will allow you to get an idea about the term that lenders can offer you.
These days there are multiple lenders who allow you to apply for the pre-qualification through their online platforms, such as a website or a mobile app. usually, this pre-qualification allows lenders to see your credit score with a soft check, which does not harm your score as the real loan applications do. Thus it is quite beneficial for you too.
For your pre-qualification process, lenders will ask you a set of information:
- Date of birth.
- Mother’s maiden name.
- Monthly debt obligations (rent, student loans, etc.).
- Address, email, phone number.
- Employer’s name, phone number, and work address.
- College name and major.
- Previous addresses.
- Social Security number.
After you provide these details, you may fail at pre-qualification if your income is too low to cover the payments, if your work history is weak, if you have a debt-to-income ratio that can be considered high like 40%, and if you recently applied for too many loans or credits cards.
Find Personal Loan Options
After you get pre-qualified and offers from some lenders online, you should also compare those offers with other offers you can get from the local lenders you can find where you live. You can visit credit unions or local banks to talk to their agents. Credit unions are usually the best option for getting smaller loans if you only need under a couple of thousand dollars.
During your research, you should also take a look at credit card offers you can get. You may use such a card to cover your expenses in the short term and repay it later. This may be a cheaper option when it is possible.
If you do not have a good credit score, you may not get good deals for unsecured personal loans. In such a situation, you may consider bringing in a cosigner to improve your case. If your co-signer has a much better credit score than you, they can help you to get a deal that you would not be offered otherwise.
Be Careful About The Details
When it comes to getting a personal loan, you will fill out a form and sign an agreement. Of course, like any other contract you sign, there will be some fine prints that you need to be careful about. So, before you get to that step, you should check some details. The most critical ones can be listed as below;
Hidden Costs and Fees
You should be sure that you are aware of all the costs and fees that you are agreeing to pay. These can include any origination fees and application costs.
Some lenders punish you with some extra fees for paying off your personal loan debts earlier than your financing agreement term. Be sure that you are aware of the amount that you will need to pay in such cases.
Credit Bureau Reports
It is always important to be sure that your proper payments are reported to the credit bureaus, so your payments can increase your credit score. If your loan agreement state otherwise, you should consider it again.
Getting The Personal Loan
After you pick a personal loan offer that you are happy with, there will be some paperwork to complete your application.
First, you will need to provide some documents. These documents will be used to verify the information you provided in the previous steps.
The documents you will need to provide are; a valid identification (state ID, Social Security card, driver’s license, or passport), some documents to prove your address (such as utility bills or a copy of your rental lease contract), as well as documents for proof of income.
After you provide all the documents and information they need, loan agents will check your credit score with a hard check. This credit check will have a small negative effect on your score, but you will make up for it as you repay your loan.
If everything goes according to the pre-qualification checks and plans, you should get the final approval and your loan should be given to you within the time window that your agreement states.