Personal Loans: How Can You Get One?
A personal loan can come handy if you are in urgent need of cash and yet do not want to break your savings. Personal loans are usually unsecured in nature which means that they do not require you to pledge collaterals like a house or car to get the loan. A personal loan amount can vary from as less as 1000 USD to as high as 50000 USD. They need to be paid back within a term of 2 to 5 years in installments. The terms and rate of interest will vary depending on your credit score.
Let us look at the following step by step approach to getting a personal loan
- Check your Credit Score
This is probably the most important step to take before even thinking of applying for a personal loan. Whether you will get the loan or no, what is the rate of interest your loan provider will charge etc. – all depend on how good or bad your credit rating is. A strong credit rating gives you a higher chance of getting an approved personal loan and that too at low-interest rates. Generally, a credit score of 720 and above is considered as excellent. If your credit score is not up to the mark, it is recommended that you rectify the same and only then apply for a personal loan.
- Get pre-qualified for a personal loan
This gives you an idea of what you are getting into, the kind of offers available, etc. A lot of online loan providers normally do run a soft credit check during the pre-qualification process. (This does not affect your credit score). You can check it ahead of time. You may have to provide data like monthly debts, income, details of the employer, personal contact details, primary personal details, educational qualifications, social security number, etc.
- Conduct Your Research
Once you have your pre-qualified offers with you, you can compare the features and benefits of each. Look at the amount, monthly EMI, interest rates, etc. You could consider taking a loan from a local credit union instead of a bank. They usually offer lower interest rates and give you loans even with a lower credit score. They are best for a small loan amount. If you have an already existing relationship with your local community bank, you may get better rates from them.
- Compare multiple credit options
Before applying for a personal loan, check if you need one or you can make do with other credit options. You could look at a 0% credit card if you have good credit. This is essentially your cheapest option. If you do not have a great credit score, you could opt for a secured loan provided you have something to pledge as security.
- Ensure you read the fine print
It is vital to read the fine print and fully understand the terms and conditions set by the loan provider before opting for the loan and signing any papers. Make a note of specific points like what are the pre-payment charges. Some lenders may have a penalty and some may not. The annual percentage rate (APR) should include the total cost of your loan without any additional or hidden charges. Does your lender report your on-time payments to credit reporting agencies? If they do, your credit score will improve.
- Final Loan approval
Once you have selected a personal loan provider who matches what you are looking for, you will have to submit a few documents like ID proof, Address proof and proof of income. After the verification of these documents, your provider is likely to run a hard credit check and then once the final approval is done, you should ideally get your loan amount within a week (subject to the provider’s terms and conditions).