When faced with an unexpected expense, debt consolidation or home improvements, personal loans can be a great solution to fund those needs. But before applying, be sure to assess your individual situation carefully so that the loan meets both your financial requirements and objectives.
Your credit history is the single biggest factor in deciding whether or not you’ll be approved for a personal loan. A score of 660 or higher usually qualifies you for the best rates, though many lenders also take into account other factors when making their decisions, like income, debt-to-income ratio, and current expenses.
If your credit history is less than stellar, there may be options to help you secure a personal loan. Secured personal loans require you to put down collateral in exchange for lower interest rates and terms, while unsecured personal loans don’t need any asset as security.
Local and national banks as well as credit unions offer personal loan terms and limits that differ from credit unions. Therefore, it pays off to shop around for the best rates when looking for a personal loan.
APR — An APR stands for “annual percentage rate.” This figure represents the total amount you’ll pay over time, including your interest rate and any lender fees. Comparing APRs is important since it gives you a more accurate assessment of how much a loan will cost you in total.
Termlength — When selecting between personal loans, the length of the repayment period should be taken into account. The longer the term, the higher your interest payments will be; so make sure your chosen termlength aligns with both your financial objectives and budget.
Some lenders charge borrowers a fee for submitting their loan applications, but this is usually an expected part of the process. Other fees like origination fees can make total costs for a personal loan much higher than they otherwise would be without them.
Many online lenders do not charge their borrowers origination fees, and some even provide no-fee personal loans.
Once you’ve decided that a personal loan is the ideal solution for your financial objectives, it’s time to get started. You’ll need to fill out an application and provide personal information like your credit score, employment status and income level.
Once approved for a personal loan, you’ll receive an estimate of how much money is available to borrow. This process, known as prequalification, provides you with a fast estimate of whether you will qualify.
Once you’ve identified a lender that meets your needs, you can apply for a personal loan either online or at a bank branch. The latter is preferable since you’ll get to speak to someone and receive an instant decision.
When evaluating personal loan options, you’ll want to compare the terms and conditions, annual percentage rate (APR), and any additional fees or penalties. In many cases, personal loans are better than the ones offered by big 5 banks, as they may come with lower interest rates and more flexible repayment terms.