How to Apply for a Personal Loan
Knowing when to use a personal loan can be the most effective way of saving money through debt financing as well as in helping meet urgent financial obligations. The process how to apply for a personal loan should start by checking if a borrower can meet the minimum requirements to calculate the probability of the loan being approved. This will avoid wasting effort before going through the whole process. The personal application process will also require to prepare the required documentation, fill up an application form, and get interviewed by the lender. Your application will then be further reviewed before a final decision can be made.
Compare some lenders and rates as the first step of the process:
What are Personal Loans
If you are wondering about when to use a personal loan and how to successfully get approved one, we have compiled some effective guidelines to follow to apply for a personal loan. Usually, people avail of personal loans if there is a need to make a significant purchase or if they urgently have to spend a huge amount for an emergency situation. In these cases, they usually find themselves in desperate need of ready cash immediately. A type of credit in the form of a personal loan can usually help if this is your case. Personal loans are considered as installment loans where you can readily receive the requested amount once a lender approves. These loans have to be repaid within an agreed timing as set by the lender. Personal loans are also classified under unsecured loans, meaning the interest rates are higher than secured loans. However, there are some lenders that can offer relatively lower rates compared to loans from credit cards.
When to Consider a Personal Loan
Due to the unsecured nature of personal loans, it is important for you to know on when to use a personal loan. One of the most typical reason for considering one is when you need to do some debt consolidation in order to save some money in terms of interest reduction. However, you will need to be disciplined enough to keep your expenses within a set budget so that the debt will eventually go down to zero. Aside from saving some interest rate cost through debt consolidation, other reasons when people usually need to use a personal loan are the following: home renovation, business financing, holiday travels, medical-related payments, major life events such as weddings, and home appliances’ acquisition. Once you have decided that applying for a personal loan is the best course of action for any of the circumstances above, there are several processes that need to be followed in order to ensure that the personal loan can be granted successfully. The first step is for you to decide prudently on how much money needs to be borrowed and to ensure that you can meet the minimum requirements and the set eligibility criteria before taking the first step towards your loan application. Let’s dive in how to apply for a personal loan.
How to Apply for a Personal Loan: The Process
In order to ensure the success of a loan application, you will need to ensure that you have a favorable credit history. This is important when you already decided to use a personal loan to fulfill your immediate cash needs.
Once you have determined that you can meet the minimum eligibility requirements, you need to prepare the documents that are typically needed for a loan. It will save you some cost and time if you can have a checklist of the required documents so you can organize your effort and properly allocate time and budget that you need to gather all of these requirements. Having all these documents in one place can also prevent you from wasting effort and time in scrambling for the requirements when these are already needed by the lender. This will also prevent any delays in the approval of the loan. The documents that are typically required by banks and lenders include identification papers such as a driver’s license, passport, state ID, and other government IDs. Some supplementary documents needed are birth certificates, proof of citizenship, military ID, and proof of residence such as utility bills. Proof of financial standing documents are also required. These are usually income tax returns, bank statements, pay slips, financial statements, mortgage documents, credit card statements, and other requirements that can provide proof of income. They may also request a credit report and/or your credit score.
Once these are prepared, you can then proceed to find a suitable lender for your needs. When selecting a lender, you must exercise due diligence in order to determine the right lender that can give you the most cost-effective rates and the one who can give you the best customer service. This can enable you to save on costs especially on the interest rates. Having a lender who has a streamlined process can also save you some time and effort during the loan application and processing period. Some personal loan providers that you can take into consideration are Upstart, Avant, and Payoff.
After selecting a lender, you will then be asked to fill up a manual form or if the lender has an online process, they will ask you to proceed to their website and fill up their online application form. This is the step when you officially apply for a personal loan. You will need to provide some initial information like zip code, joint or individual account preference, and others. As you progress through the application form, you will be asked to provide more information such as your personal data, contact information, work history, income, overall financial situation, preferred loan amount, loan term, and purpose of the loan.
Once you have engaged with a lender, you need to be prepared for the questions that they will ask in order to assess your capability to pay. The questions below are usually asked when applying for business loans but personal loan questions also go something along these lines. Basically, the lenders would need to assess your capacity to pay by checking if you have the means and the supporting documentation to pay back the loan. First, they will ask the obvious question of how much loan amount is needed, a question that borrowers usually find the most challenging to answer. The lenders will usually try to force you to state the amount that you need and not the amount that you want in order for them to assess whether you have done your due diligence in assessing your financial situation. The lenders will also take a look at your credit scores and will ask some questions to verify any negative results. The answers to these questions will then determine whether they will proceed to their next line of questions. If they can get a satisfactory answer to any of their previous questions, they can then proceed to inquire on how you will use the loan. For this question, they will assess if you have the capacity to pay back the loan.
Usually, they will find it good if you will use the loan to further grow your money such as using the loan to fund your working capital. However, using the money to pay your previous debts may have some negative marks against you. The lender will then check with you on how you plan to repay your loan. You will need to support your answer with documentation such as your financial statements and other proof of income. So make sure you have these ready when you apply for a personal loan. They will also inquire about any outstanding loans that might impact your ability to pay. If you will use your personal loan to fund your business, you will be asked if your earnings are enough to pay in accordance with the terms of your loan. The lender will usually require some documentation to prove that you have enough cash flow. These documentations can include your business’ profit and loss statements and your balance sheet from the previous years to check for profitability. You will also be directed to
The process how to apply for a personal loan may be slightly different for each loan provider but they usually follow more or less the same process that was described above when you decide to use a personal loan to fund your urgent needs.