Picture this: you’ve got a dream project in mind, whether it’s finally renovating your kitchen, planning a dream vacation, or even starting a small business.
But there’s just one tiny hiccup—you need extra funds to make it happen.
That’s where a personal loan can save the day!
Think of it as a financial fairy godmother who grants you a lump sum of money upfront that you can use for anything.
If you’re ready to learn the best and easiest way to get a personal loan, this will be the most important blog post you read today.
And here’s why:
With over two decades of experience as a financial coach and banking expert, I’ll show you all you need to know about getting a personal loan so you can make your dreams a reality.
Whether you need to fund a massive unexpected expense or start and scale your business, I’ll give you the best tips on how to get a personal loan so you can achieve it all.
Getting a personal loan doesn’t have to be difficult whatever your reason.
In fact, it can be downright easy if you know what you’re doing.
But before I show you how to qualify for a personal loan, let me first show you exactly what a personal loan is.
If you know this, you will be more prepared by the 99% of people out there and have a much, much greater chance of getting more money with much better terms.
Let’s dive in:
You should consider that these loans will differ in interest rates, terms, and conditions depending on various factors such as your credit, income, financial history, and more.
What’s A Personal Loan?
A personal loan is an installment loan with fixed rates and scheduled monthly payments.
Personal loans’ repayment terms usually range between one to seven years.
Once you’ve received all the funds, you can pretty much use them for any purpose.
Generally, people choose to take out a personal loan to finance an asset like a new car or boat.
If you want to fund an event, home renovation, or any other major expense you might face right now.
You can get a personal loan from banks, credit unions, and even from online lenders.
Personal loans are also popular because they have lower fixed interest rates than credit cards and are typically easier to qualify for compared to mortgage loans or home equity.
Types of Personal Loans
Personal loans can either be secured or unsecured.
The main difference is that secured personal loans require collateral for borrowing money.
For instance, you can secure a personal loan by offering your cash assets, like a savings account, as collateral.
There are many types of collateral. You can offer real estate, business equipment, inventory, invoices, investments, and more.
On the other hand, unsecured personal loans don’t require collateral to borrow funds.
However, unsecured loans are generally riskier than secured loans since there’s no collateral to collect.
7 Tips To Get A Personal Loan
Qualifying for a personal loan doesn’t need to be complicated.
All you need to do first is understand the different requirements and compare offers so that you can select the most suitable loan for you.
Here are seven steps to help boost your chances of finding and getting approved for a personal loan.
1. Check Your Credit
Lenders, especially for secured loans, will review your credit history to help them decide whether to approve or deny your loan application.
Your credit scores serve as a reflection of your creditworthiness or your likeliness of repaying the loan.
That’s why it’s crucial to check your credit scores and credit reports first to see whether your score is enough to qualify for the loan.
Having a good or excellent credit score will help you qualify for most of the best financial products, not just a personal loan.
To further understand your credit score, here’s a quick look at credit score ranges:
- Poor: Less than 580
- Fair: 580-669
- Good: 670-739
- Very Good: 740-799
- Exceptional: 800-850
Check for inaccuracies or any errors on your credit report since these mistakes can actually drag your scores down.
If your credit score is currently low, it’s best advised to focus on building your credit first.
Besides making sure to make on-time payments on all of your debts, here are a few tips on how to improve your credit:
- Lower credit utilization
- Get a credit builder loan
- Don’t open multiple accounts at once
- Increase your credit limit
- Pay down debt
2. Only Borrow What You Need
Before applying for any loan, you must be true to yourself and only borrow what you need.
Evaluate your finances carefully.
You don’t want to borrow too little that it won’t suffice your needs, but don’t borrow so much that you’ll have a hard time repaying the debt.
Personal loan companies usually offer a range of loan amounts. That’s why it’s important to come in knowing what you need so that lenders can help you and recommend the best loan for you.
3. Calculate Loan Payments
Once you’re set on a loan amount, you need to research the loan’s interest rates.
Many factors influence business loan interest rates.
For instance, lenders can look at your business’s age and financial history, cash flow, credit scores, or even the type of industry your business is in.
A good estimation of your loan payments can help you decide if you can afford to take out a personal loan.
It can also help you create a budget that works for you.
First, think about how much money you need from the loan.
Then, consider how much time you’ll need to repay the loan. Keep in mind that longer loan terms usually mean lower monthly payments. However, you’ll probably pay more in interest.
Choose a personal loan that has payments that will fit comfortably into your budget.
4. Get Prequalified With Multiple Lenders
It’s tempting just to apply with banks and financial institutions with which you already have a good relationship, but it can still be helpful, and you can even save more money with different lenders.
Fortunately, many personal loans offer prequalification.
Prequalification allows you to view and compare various rate quotes, including soft credit inquiries (it won’t affect your credit scores).
The process is quick and will only take just a few minutes.
Try to get prequalified with at least three to five lenders to understand their offers better.
5. Compare All Loan Terms From Different Lenders
Loan interest rates may be among the most important factors when considering a personal loan. It’s also important to consider other loan terms like:
- Repayment Terms—Personal loans typically come with terms ranging between one to seven years.
- Fees—Check for application fees, prepayment penalties, origination fees, underwriting fees, draw fees, closing costs, appraisal fees, and more.
- Loan Restrictions—You can basically use a personal loan for anything you want. However, some lenders still have restrictions. For instance, you can’t use personal loans to pay for secondary education expenses or to purchase investments.
- Funding Time—Once approved, lenders will fund your loan within the next few days or weeks. Traditional lenders typically need more time to give you the money. On the other hand, online lenders are much faster when it comes to funding time.
- Discounts—Some lenders may offer interest rate discounts if you set up an AutoPay for the loan.
6. Choose a Lender and Apply
Finally, decided on a lender?
Great!
The next thing you need to do is apply, which, nowadays, can be done online via the lender’s website.
Generally, you’ll need to provide the following information:
- Full Name
- Date of birth
- Social Security number
- Address
- Contact information
- Desired loan amount
- Desired Loan Terms
- Purpose of the Loan
- Employment and income information
- Monthly Payment
- Government-issued photo ID
A hard inquiry should appear on your credit report since lenders will now formally review your credit as part of the application process.
Depending on the lender, once you’ve submitted your application, you can get a decision within minutes. Still, some lenders will take weeks to further process your application to examine your financial and credit profiles.
7. Review the Offer and Accept the Loan
Once approved, the next thing you do is review the offer and the loan’s interest rates and terms to ensure that it’s suitable to the one you want.
If you’re content and happy with the offer, sign the loan agreement, and the lender will disburse the funds.
Personal Loan Requirements
Every lender is unique, and they will have different loan requirements.
For instance, some lenders consider credit scores the biggest factor determining whether you get approved for the loan, while others look for collateral.
- Credit score and history
- Income
- Debt-to-income ratio
- Collateral
- Origination fee
How To Get A Personal Loan: Final Thoughts
When approved for a personal loan, your lender will give you a lump sum of cash upfront, and you’ll pay it back in fixed monthly installments over an agreed period of time.
That’s pretty simple, right?
Well, there are actually a lot of other things to consider when applying for a personal loan.
You need to take into account the loan’s terms, conditions, and of course, interest rates.
If you plan to take out a personal loan, a few simple steps like checking your credit, calculating loan payments, and comparing different loan terms can help you get the best and most suitable loan for you and your business.
A personal loan can help finance large purchases, monthly bills, investments, cover emergency expenses, and really, anything under the sun.
It’s best advised to improve your credit score and reduce your debt-to-income ratio before applying since lenders are more attracted to individuals with higher credit.