Getting a personal loan has become easier than ever. In many cases you can fill out an application, shop competing rates and secure the loan in a very short time. Personal loans are also a more affordable way to borrow when the need arises. According to the Federal Reserve, a two-year a typical personal loan carries an interest rate of about 10.6 percent where a credit card can easily be twice that amount.
While there are many places to borrow when you’re looking for a personal loan, the process to secure the loan is pretty standard. If you’re looking for a personal loan, you can expect the following steps.
Step 1: Determine your need and budget
You will need to run some numbers before taking out a personal loan. How much are you able to repay on a monthly basis? How much do you need to borrow? You can count on lenders to offer you what they feel is a reasonable amount, but only you know how much you can truly afford and what amount you need in the first place. There are calculators online that can help you estimate how much you can expect to pay every month by borrowing different amounts.
Step 2: Know your own credit score.
Most lenders will base their loan decisions on your credit score. The lower your score, the more risk the bank is taking to lend to you based on your borrowing history. You should obtain a copy of your credit report before requesting a loan so that you know your score and you know that there are not mistakes on your credit report that might affect the bank’s decision.
Step 3: Secured, co-signed, or unsecured?
There are different loans types out there, so before you start shopping you should decide what you’re shopping for. First decide if your credit score is enough for you to get your own loan. If not, you might need to have a co-signer to be approved.
Next, decide if you want to tie your personal loan to an asset like your car or home. You might get a better interest rate, but you will be using your property as collateral. If you don’t want to tie your personal loan to your assets, you will be searching for an unsecured personal loan.
Step 4: Think about why you are borrowing.
Banks and lenders will ask about your goals with the money you are borrowing. They approve loans for different purposes and terms can vary based on your goal for the funds. You may have to provide additional documentation based on your borrowing goals as well. Are you borrowing money to start a business? Pay a medical debt? Consolidate credit cards? Be clear in your purpose before you start filling out applications.
Step 5: Look for the best personal loan rates from lenders.
Remember that you can get a personal loan from lots of places – not just traditional banks. It is not in your best interest to take the first loan that is offered to you. Check the rates at traditional banks, with peer-to-peer lenders, with credit unions and online lenders.
Because many of these lenders will check your credit during this process, you will want to work quickly to check rates with various lenders. Every ping on your credit score can lower your score, so consolidating your credit checks can help keep your score consistent for borrowers and minimize the effects of the credit check.
Step 6: Apply for a personal loan.
Once you have an idea of the rates available to you, pick your best option and complete the application. You may be able to do this process online or you may have to visit a bank or credit union in personal to finalize the process.
You can expect to provide your name, address, contact information, loan purpose, income and
employment information as well as your social security number for a credit check. During the
application you will be offered terms for the loan including the official interest rate and the repayment terms. Be sure to read the materials carefully and ensure the loan will meet your needs.
Step 7: Provide all of the documentation required.
Some lenders won’t require any documentation at all for a personal loan. Others may request a copy of your paystub or driver’s license. If you are using a secured loan, you may have to show a copy of your deed or driver’s license. You won’t get funds until all paperwork is sorted, so don’t delay on this step in the process.
Step 8: Wait for funds and start repaying the loan.
Once you’ve submitted all documentation and your loan is officially approved, you will receive funds. Some lenders provide funds quickly, others can take up to a week or two to fully fund a loan. Once you have the funds, you can use them for your purposes, of course. You must also begin making payments on your loan to repay the amount. Check for discounts for setting up automatic payments or repaying the loan early.