Getting a personal loan can be a quick solution to all of your financial problems or a way to the pit of debt. Everything depends on the right calculations and the way you manage your finances. This article is written to help you find the correct balance.
- 1 Before Getting a Personal Loan
- 2 Step 1. Calculate your budget and decide how much money you’ll borrow
- 3 Step 2. Decide on the type of loan
- 4 3. Pick your lender
- 5 4. Know your credit history
- 6 5. Know your lender’s requirements
- 7 6. Compare the lenders
- 8 7. Gather all necessary documentation and info
- 9 8. Apply for preapproval
- 10 Beyond the application process
- 11 Alternatives to consider before taking out a loan
Before Getting a Personal Loan
First of all, so you research and confirm the loan type you need. Personal loans are unsecured type, which means your credit will be used as a gauge, not an asset. This kind of loan will not work if you need a large sum or an oper source of credit, so you’ll have to find other options for such cases.
Step 1. Calculate your budget and decide how much money you’ll borrow
Take the expense you’re going to cover and your income into consideration while deciding how much money you need. The rule of thumb comes down to this: find out how much you can spend each month and aim to borrow less to avoid any mishaps.
Remember, that a smaller, say, $500 loan, can leave you with an open financial gap, but if it’s too big, you’re risking to be caught up in a cycle of debt. It’s better to calculate your needs and your income twice.
Step 2. Decide on the type of loan
There are a whole variety of loans, but the most common ones are:
- Unsecured personal loans – the most common type. Those go without collateral, for general personal use.
- Secured personal loans – you’ve guessed it! – are backed by collateral.
- Debt consolidation loans – are a real help in digging out of the pit of debt. You can use it for repayments with a better rate and easier terms.
- Medical loans – for those undergoing general medical or dental procedures.
This list is by no means exhaustive, so you have to check with your potential lender if there are restrictions on how you use your funds.
3. Pick your lender
Each type of lender has its own pros and cons. Banks and credit unions offer a more hands-on experience and a variety of discounts for current customers. But they process applications much slower and need more documentation, than online lenders. So essentially it comes down to what you need more: fast money or easy process.
4. Know your credit history
One of the most important parameters for the lenders is a credit history, and it might determine if you’re eligible for the particular loan and whether you can get a more competitive rate. Systems for determining the scores vary. For example, there is a FICO score that goes like this:
- Excellent credit: 750-799
- Good credit: 670 to 739
- Fair credit: 580 to 699
- Poor credit: Less than 579
Most widely acceptable are good and excellent credits for at least one year before applying for an unsecured loan. If you’ve got no such luck, try browsing Bad Credit Loans in New Jersey. You might find a suitable type of loan there.
5. Know your lender’s requirements
While considering a provider, check if you’ll qualify, so you won’t waste time applying with the lender that have unsuitable requirements. Typically, any lender is looking for:
- The credit rating higher than 640
- An annual income of minimum $25,000
- Credit history of at least 3 years
- Debt-to-income ratio that is lower than 43%
There are, of course, some additional criteria that are specific for a particular provider.
If you’re afraid that you won’t qualify due to bad credit, you can go to Bad Credit Loans in Washington, DC – you’ll find a solution to your problem there.
6. Compare the lenders
It’s always a good idea to check APRs, fees, terms and payment options from a couple of different lenders and then see, which one suits your needs best. Even if you’re in a hurry due to an emergency, try to choose between at least two.
Read the documentation carefully, and look out for the scam indicators such as:
- a lender is not registered in your state;
- don’t have much of business info available;
- doesn’t have any feedback from other clients.
Beware of the information that may not be listed until after you apply, like prepayment penalties.
7. Gather all necessary documentation and info
To make the application process quick and smooth try to prepare ahead of time. The sooner you provide the lender with all the required documents – the sooner you’ll get approved. The possible list includes:
- An ID, like a passport or a driver’s license.
- Proof of employment, for example, your last three pay stubs.
- Bank statements that show your assets.
- SSN, which can be used to check your credit rating.
- Your employer’s contacts – sometimes, even your former one’s.
This list is not exhaustive, of course, but it’s a place to start.
8. Apply for preapproval
This gives you an opportunity to better compare a couple of offers before your credit history changes, as you will see all the rates and terms based on your particular application. You have to keep in mind that a preapproval offer isn’t final, though. A provider is free to change the terms after a hard pull on your credit.
Beyond the application process
The application process vary slightly from lender to lender, but you usually get pretty clear instructions. Let’s take a look at what happens next.
Most of the providers, private lenders and banks alike, require that you have a checking account to receive your loan via direct deposit. If you’d better obtain your fund through the check – talk to your lender first and see, if this option is available.
With the exception of college loans, medical or new car loans, you’ll have full control over what you spend your money on. Therefore, think carefully before applying whether you want to list a specific purpose for your funds because you’ll be tied to that.
Don’t worsen your credit history by being late on your payments. Check` ahead of time how you’re supposed to pay off your debt. Sometimes, you can pay by phone with a credit card or account number, and sometimes you’ll need to mail a check or login into your account on the lender’s website. No matter the means of paying, make your payments on time and don’t forget to budget carefully because even if you’ve taken out a small amount of money, like a $2,300 loan, can end up in much more in terms of fees and interest.
Alternatives to consider before taking out a loan
Borrowing money can take a toll on your financial and mental well-being, so before going for it, try another way to receive an additional income:
- Save up ahead of time. If you budget carefully and set aside some money each month, you’ll earn interest instead of paying it.
- Ask for a pay advance from your employer or borrow through a special app. These are in most cases quicker and cheaper than personal loans.
- Use a credit card if you need to make a small purchase. Check the rates before you decide to go with this one, cause it may have multiple fees.
If none of the above options work for you and you’ve got your mind set on taking out a personal loan – be attentive and go in with a cool head, so you can negotiate better.