Whether looking to buy your dream house or deal with an unforeseen financial crisis, personal loans are the ultimate solution. If you know the drill, in a few easy steps, personal loans open a pathway to the funds you need.
Applying for a personal loan seems like a piece of cake, but it isn’t for everyone. The slightest error can result in rejection, leaving you feeling dejected. Let’s walk through and figure out the key steps to apply for a personal loan.
How To Apply for a Personal Loan in 5 Easy Steps?
Don’t cut corners when applying for a personal loan. Each step requires assessment and research. Let’s get straight into it without wasting any time.
Assess Your Financial Situation
Can I really afford a personal loan? That is the first question you should ask yourself when considering applying for a personal loan. If you can, then how much? Assessing your financial situation paves the way for a smooth process. Here are methods to assess how much your plate can hold.
- Figure Out How Much You Need: The first step is to determine the exact amount you need. This will help you determine your monthly repayment schedule. You can use an online personal loan calculator to estimate your possible monthly payment.
- Calculate Your Monthly Expenses: Now that you have determined how much you need, it’s time to determine whether your pocket allows it. Calculate your monthly expenses, including your spending on rent, groceries, phone bills, insurance premiums, credit card bills, and more.
- What’s Left: After deducting all your expenses from your monthly paycheck, what’s left will help you decide whether you can afford a personal loan or not. You are good to go if it is enough to cover your monthly repayment.
- Check Credit Score: By this step, you must have decided, but checking your credit score before applying won’t hurt you. Use any online credit score calculator to check it. If it comes out gloomy green, you are all set, but if it is alarming red, you need to hold off and rethink. Bad credit scores increase the chances of personal loan rejection.
Research Different Lenders
Don’t rush into things. Each lender offers different interest rates, loan amounts, and tenure. Check multiple vendors, both offline and online, and compare them before arriving at any decision. Here are things to check out when comparing lenders.
- Interest Rate: The lower the interest rate, the better it is. Look out for vendors that offer the minimum interest rate. If you have an excellent credit score, you are entitled to the best interest rates; don’t let lenders fool you. 36% interest rate is the upper limit; anything above it, you can simply reject.
- Loan Amount: Make sure the lender offers the amount you need. Lenders often lure customers by offering higher amounts at low interest rates; don’t fall for that trap. Stick to your budget and keep looking for the perfect deal.
- Loan Tenure: Decide on your loan tenure based on your loan amount. Just so you know, if you opt for a longer-term length, your monthly payment will be less, but you will pay high interest, and vice versa. Give it some thought and choose wisely.
- Additional Fees: Each lender charges additional fees differently. Some standard fees are origination fees, late fees, and prepayment fees. The origination fee is deducted from the loan amount.
For example, if you are taking a $2000 loan, and the lender charges a 10% origination fee, you will only get $1800 upfront. Select a vendor with minimum additional charges.
Gather Required Documents
You need certain documents to meet the requirements for a personal loan when applying. Since the process involves a lot of paperwork, it’s best to keep all your documents handy to avoid last-minute hassle. Keep these documents in a safe place, such as a dedicated folder.
- Government ID: Driver’s license, passport, or state ID to prove your identity.
- Proof of Income: Recent pay stubs, W-2s, or tax returns to show you can repay the loan.
- Bank Statements: To verify your financial stability and cash flow.
- Proof of Address: Utility bills, lease agreements, or mortgage statements to confirm where you live.
- Credit Score Info: Some lenders may request permission to pull your credit report.
- Loan Application: Filled Application form detailing your loan purpose and personal info.
Some lenders set unique documentation requirements, but most will ask for the same documents. If you don’t have the required document, don’t worry. Depending on what’s missing, lenders will provide an alternative.
Submit Loan Application
Now that you have the hard part of review and research, it’s time to submit your personal loan application. The chosen vendor will ask for documents, and your work will be completed upon submission.
Once the loan application is submitted, the lender will check your credit history with a hard credit check, resulting in a slight decline in your credit score. Once the checking is done, the lender will prepare the loan agreement and send it to you for signature.
Review and Sign the Loan Agreement
Don’t be so excited and sign off the papers without reading. You might end up in trouble. Read every paper carefully. Check whether the interest rate, loan amount, and length are similar or close to what you discussed and agreed.
Once you sign the agreement, the funds will be transferred to your bank account or the mode of payment you chose within a few business days.
Frequently Asked Questions
Q1. How Much Can You Borrow With a Personal Loan?
The upper limit for a personal loan in the states is $100,000. However, it varies from lender to lender and depends on your credit score, monthly income, and debt-to-income ratio (DTI). Lenders are willing to offer high amounts to people with a good credit history and a stable monthly check.
Q2. What are the different types of personal loans?
The various types of personal loans are unsecured personal loans, secured personal loans, debt consolidated loans, consigned and joint loans, fixed-rate loans, personal line of credit, variable-rate loans, and buy now, pay later loans.
Q3. Does applying for a personal loan impact your credit score?
Yes, it does impact your credit score, but the dip is minimal. Taking a loan increases your debt, which brings a change in your credit score. Once the timely repayment is done, the credit score improves, and it takes a further dive in case of missed payments.
Q4. Which is the best place to get a personal loan?
The best place to get a personal loan depends on two main factors: loan amount and credit score. Banks are the ultimate option if your credit score is all green. If it is not that good and is close to red, apply for personal loans online. Compare their terms and conditions to find a perfect match.
Q5. How Long Does It Take To Get a Personal Loan After You Apply?
It depends on each lender’s review process. Usually, it takes several business days to receive the loan amount. When you apply for personal loans online, the funds are released within 1-3 business days, whereas banks release them in 3-7 business days.
Q6. How Hard Is It To Get a Personal Loan for the First Time?
It doesn’t matter whether applying for the first or second time; it’s not challenging if you have a good credit score, low DTI, stable income, and the required documents. These factors improve the odds of getting a personal loan in the very first attempt.
Q7. Can I Pay Off My Personal Loan Early?
Yes, depending on the lender’s terms, you can pay your loan early. Some lenders allow pre-payment but charge fees for it, while others may accept prepayment without any penalties. Always check for prepayment fees when signing the loan agreement. Paying off early is a smart decision; it saves on the interest amount.
