A personal loan could be a great source of getting the much-needed cash for consolidating debts, financing a project like home improvement, or even preparing for adoption. According to the Federal Reserve, the average interest rate of a two-year personal loan is around 10.7 percent. That is, in fact, almost 7 percent lower compared to that 17.69 percent interest rate of credit cards.
Regardless if you are planning to get a personal loan from an online lender, a credit union, or a bank, the process is almost the same. However, obtaining a loan the smart way entails a little ounce of research to ensure that you avail the best offer. Here are the seven easy and smart steps on how to get a personal loan.
Check the Numbers
Before taking out a personal loan, it is important to run the numbers first. The last thing that you would want to do is to not be able to pay off the personal loan that you availed. Although lenders usually do their part in ensuring that they have the capacity to pay the debt, it’s always smart to run the numbers and make sure that it will indeed work out.
To do this, you can begin by identifying the amount of cash that you need. Bear in mind that there are some lenders that charge for the origination fee which is usually deducted from the proceeds of the loan. Ensure that you borrow enough amount to get what you need even the fee is deducted.
After that, you can use a personal loan calculator online to determine your monthly payment. This could be tough especially if you still do not know the repayment terms or the rates that the lender offers.
Know Your Credit Score
The majority of the lenders will conduct a credit check to know if you are capable of repaying your loan. There are some online lenders that choose to source out other credit data but usually they will look at your credit score. Most of the best personal loans offer necessitate that you have a fair credit score, however a good and excellent credit score will give you a better chance of getting approved and with a good interest rate.
Check Your Choices
Your credit situation could tell you is you would need a co-signer to avail a personal loan with a good interest rate or to get approved. If you could not find a co-signer, you may avail a secured personal loan. This type of loan entails a collateral like a vehicle, cash in savings account, home equity, or certificate of deposit for you to avail of more favorable terms. Should you fail to repay the loan; the lender can take the collateral to pay the debt off.
It is also important that you think of places to go to acquire a personal loan. You might have a hard time getting approved of a personal loan application if you get it from traditional banks especially if you have a bad credit score. There are, however, several online lenders that specialize to those with bad credit history or bad credit score.
Check Which Lender Offers The Best Interest Rate
One cardinal rule is getting a personal loan is settling with the first offer because it is seldom the best one. Take your time and try to look around first so you can find out which lender offers the best interest rate. You can compare the offers from various lenders and the type of loans to get an insight of what you could qualify for.
If you have account with a credit union or a bank that has been active for a long time, try talking to them first. You good financial standing for years could be used as basis of the bank to overlook some credit issues. There are also several online lenders that will easily pre-qualify you with a soft credit check.
This could be a viable and smart way to check the offers without any commitments attached. Those that typically do not offer the pre-qualification process will run a hard credit inquiry as part of the application procedure. It is best that you rate shop within 45 days to restrict the hard inquiries on your credit history or credit score.
Choose A Lender And Apply
After you have done your part choose the lender with the best available offer that matches your needs and begin the application process. There are some lenders that allow you to do the application process online and some require that you personally visit the local branch.
Each lender is different when it comes to the kind of information they will require from you for your application. But usually, you will have to provide your name, contact information, and address, employment and income information, and reason for the loan.
Deliver the Required Documentation
The required documentation depends on your credit situation and on the lender. There are some that require you to provide supplemental documentation after you have submitted your application. The lender will inform you if it requires you additional documentation and how you could get it.
Receive The Loan And Begin Making Payments
As soon as the lender informs you that your application for personal loan has been approved, you will need to finalize the documents needed for the loan and accept the terms of your loan. Once you have done this, your loan fund will usually arrive within a week. There are even online lenders that will give it to you within a couple of days.
Now that you have been granted your personal loan, take note of the date of your first payment and try to set up auto payments from your account to pay it on time. There are some lending institutions that offer additional interest rate discounts if you enroll your account to autopay.
It also helps if you add a little extra money to your payments every month. Although personal loans could be much cheaper than credit cards, you will still save money on the interest by paying off your personal loan early.