If you’re planning to borrow money to consolidate credit card debt, move to a new home, or meet any financial need, a personal loan can be a good option. This type of loan is typically unsecured, which means there’s no need for a collateral, such as a house or a car. But of course, there are other things you should know about before finally deciding to apply for one.
Credit Score
A strong credit score will increase your chances of getting a personal loan and a lower interest rate. If yours isn’t exactly stellar, do something to improve it before you apply. Start by making payments on time and avoiding maxing your cards. You’ll also want to request a free credit report, review it, and get errors fixed, if any.
Loan Prequalification
Loan prequalification will let you take a peek into the possible offers you might get. A lot of online lenders will do a soft credit check during prequalification, which will have no effect on your credit score, so take advantage of it early on. Prequalification will require you to provide some basic personal information such as your Social Security number, monthly debt obligations, income, employer information, and the like.
Fine Print
Like any other type of financing product, personal loans come with terms and conditions. Pay close attention to prepayment charges, APR additions (your APR should cover all fees from the get-go) and automatic withdrawals (get a low balance alert programmed into your checking account to avoid overdraft fees). Also make sure that the lender reports payments to credit bureaus, pays directly to creditors if you’re consolidating debt, and has generally flexible payment features.
Submitting a Personal Loan Application
After reviewing a few lenders and making comparisons, it’s time to pick the one that fits your needs most perfectly. Before you apply for a personal loan, be ready with a state-issued ID (Social Security card, driver’s license, etc.), address verification (copy of lease, utility bills, etc.), and evidence of income (pay stubs, tax returns, etc.). Expect the lender to do a hard credit check as well, and know that this will affect your scores to a minor extent. Provided all needed documentation is in place and you actually meet the bank’s or lender’s requirements, the funds will likely be forwarded to your account in a week’s time.
While a personal loan can certainly help you in a financial need, you need to go over your options carefully before settling on one. Hunt for the best rates, don’t borrow more than you actually need, and be conscientious when making your payments. And remember, make comparisons because this is the only way to know which option is best.