Here is how you can apply for a personal loan

Applying for a personal loan is an excellent way to give yourself a financial cushion. Unlike so many loans out there, personal loans are typically diverse. In other words, it is totally up to you whether you want to spend the loan amount on medical bills or family vacations. To top it off, many lenders won’t even ask you to put something as collateral.

However, in order to qualify for a personal loan, you need to apply it in a proper way. Unless you are well-prepared, no lender will entertain your personal loan application. Therefore, you must take the following steps in order to increase the chances of approval:

1. Determine the amount you need

Not knowing where you are going to spend the money is a non-starter. You must have a clear idea about how much money you want and where it is going to be invested. It will keep you right on the track and save you from undue or excess borrowing. Remember, the borrowed amount is liable to interest. So the more money will entitle you to pay more interest.

Typically, a personal loan is taken to cover extravagant costs like:

• Purchasing a car

• Investing in home renovation

• Wedding expenses

• Look after medical bills

• Long family holidays

If you are aiming for any of the above-listed stuff, a personal loan is definitely your cup of tea, provided you have a clear and detailed idea about its costs.

2. Evaluate your financial condition

Once you are sure about the budget, it’s time to assess your financial status. Since the credit score is going to be instrumental in the whole process, you need to have a look at it. There are multiple sources to get a free credit report. A healthy credit score will come up with easy and flexible terms. Also, you are most likely to be approved for a higher payment.

Some lenders might grant you the loan even with a low credit score, but you will be liable to a higher interest rate. Their criteria may also include a stable job and a decent income.

In case your credit score is hitting the rock-bottom, and it’s not an emergency, you might consider waiting for a little before the credit score improves.

The worst thing that can happen to any potential borrower is to be denied the loan due to an inaccurate credit report. So make it a point to have your credit report thoroughly inspected before deciding further course of action.

3. Pick the right type of loan

There are various types of personal loans. All of them might not be equally suitable to cater to your specific needs. Therefore it is very important to filter out which type of personal loan can work the best for you. We have divided the personal loan into two main categories. Namely fixed and variable personal loans.

1. Fixed personal loan: The best thing about a fixed loan is that you can always predict the amount you have to pay at the end of a week, fortnight or month. It definitely reduces the air of uncertainty, and you can easily single out the repayment amount from your budget. The only offshoot of obtaining a fixed personal loan is that you will be charged a slightly higher interest rate compared to a variable personal loan.

2. Variable personal loan: Though a variable personal loan begins with a lower interest rate, it can rise as soon as the market escalates. In other words, your monthly payment can fluctuate.

You need to weigh down both the options very carefully. It is recommended to look at the bigger picture instead of just focusing upon the payment of the first few months.

3. Shop around to compare rates

Unfortunately, an overwhelming majority of the borrowers miss out on good terms just because they don’t shop around. People usually settle for a nearby bank. This will surely save your legs but not necessarily your bank balance. The popular options include banks and credit unions. If you have already taken a loan from a bank or credit union, you may be offered a discount as well.

Some lenders could ask for a hard inquiry before approving the loan. Be mindful of the fact that too many hard inquiries can significantly dent your credit score, and you will have a hard time to access a loan in the future. On the other hand, soft inquiries don’t cause any such backlash.

If you are dealing with an emergency situation and want to be approved for the loan at the earliest, you can explore the online options. Unlike traditional sources, the online process is faster and more convenient than the physical method.

3. Collect required documents

The majority of the lenders will require you to submit the following list of documents and details:

• Letter of employment

• Social security number

• Information about your bank account

• Contact details

• Photographs

• Recent Payslips

Since these are the documents lenders generally ask for, you should read the requirement list of your lender just to be on the safe side and deter any delays.

3. Go through the fine print and submit the application

In order to avoid confusion in the future, you must go through the fine print. After all, nobody is beyond mistakes. If you have questions regarding a certain point, you must not skip asking them until all the doubts have been cleared. A loan officer can also answer your queries.

Once your mind is free of all the uncertainties, it is time to submit the loan application and wait for the approval. If everything is in line with the lender’s criteria, you will get the good news very soon.

Wrapping up

As this piece unfolds, applying for a personal loan is not difficult at all. Since there are so many types of personal loans with flexible requirements, you have a good chance to qualify for at least one of them. All you have to do is walk the tight line of the above steps and get the job done quite convincingly.