A Beginner’s Guide to Getting a Personal Loan
Whether you’re buying your first car, renovating your home, or financing another big purchase, a personal loan can be a smart way to get money quickly. But they aren’t right for everyone—and they’re not as simple to get as a credit card. That doesn’t mean it’s impossible. With some research, focus and fortitude, you can learn how to get a personal loan and take that first step towards getting the money you need. A personal loan is essentially money borrowed from a financial institution in which you will pay back a fixed amount of principal and interest over an agreed upon time period. It differs from a mortgage, car loan or credit card in that the lender requires collateral from the borrower in order to secure the loan.
The benefits of a personal loan
A personal loan is a quick and easy way to get the cash you need fast. Since the loan is approved quickly and there is no lengthy application process involved, you can often get the money you need in as little as a week. This can be especially helpful if you’re in a time crunch and need a certain amount of money by a certain date. A personal loan also comes with low interest rates compared to other types of loans, such as a credit card or a home equity line of credit. If you have bad credit, you may have limited options when it comes to getting approved for a loan. A personal loan is often an option if you need cash quickly. If you’re able to pay the loan back on time, you can build your credit by having the loan reported to the credit bureaus as a positive payment history.
Know your options
A personal loan is a type of unsecured loan in which you borrow money from a lender and promise to pay it back (along with interest) in a fixed amount of time with a set amount of principal. It’s different from a secured loan in which you borrow money by putting up collateral (like a house or car) as assurance that you will pay back the loan. You can get a personal loan from a number of lenders, including peer-to-peer lenders, banks, credit unions and online lenders.
How to get a personal loan
Your best chance of getting approved for a personal loan is by doing your research and finding a lender that fits your needs. Start by identifying your requirements—what amount of money are you looking for? How soon do you need to repay the loan? What are your credit score and debt-to-income ratio? Next, find out what lenders operate in your state and what type of loans they offer. A good place to start is with the FINRA BrokerCheck website to learn about each lender’s background, history and financial standing. Once you’ve narrowed down your list, contact each lender and ask about the rates and terms of the loan. You may want to consider a few different types of loans depending on your credit score, debt-to-income ratio and other factors. For example, if you have bad credit, you may want to get a loan through a peer-to-peer lender as it may be your only option.
What to know before you apply
Before you start the application process, make sure you have all the information and paperwork required by the lender. This includes information like your full name, address, Social Security number and employment and income information. Make sure you’re also aware of any high-risk warning signs that may affect your ability to get approved for a loan. These include a low credit score, a history of late payments, a high debt-to-income ratio or a recent bankruptcy. Once you’ve gathered the necessary information and prepared for the application process, you should be in a good position to get approved for a personal loan.
Checklist for getting approved for a personal loan
Start by gathering your documents and researching lenders. Once you’ve done that, follow these simple steps to get the personal loan you want. Find a lender that matches your needs. Even though your credit score and debt-to-income ratio matter, you can still find a lender that matches your needs. Be upfront and honest about your financial situation. Lenders want to know that you’re a good risk—not a great risk, but a good one. If you have bad credit, it doesn’t mean you can’t get a loan. You just want to make sure you’re applying to lenders that accept people with bad credit. Find out how much your loan will cost. It’s important to know how much your loan will cost before you sign on the dotted line. You can find out by requesting a loan estimate from each lender. Set up a repayment plan. Make sure you know how and when you’ll be able to repay the loan.
Learn more
Ready to take the plunge and get a personal loan of your own? Great! Be sure to brush up on these tips before you apply, and you can be sure to get the money you need quickly and easily. A word of caution, though: Credit cards have become increasingly easy to get. But it can be equally easy to get in financial trouble, so be careful when using this path. If you’re not careful, it can lead to credit card debt that can be difficult to get out of—and that’s the opposite of what you want.