You’ve decided that you want to apply for a personal loan. Maybe it’s a loan to buy that new car, pay for a wedding, or refinance credit card debt.
Whatever the reason, it’s important to make sure your financial house is in order first.
How to apply for a personal loan
Here is a list of what you should do beforehand, as well as what you need to have ready when it’s time to apply for a personal loan.
1. Know what type of personal loan you need
Before applying for the loan, you should do some homework. Learn about who offers the type of loan, what the going interest rates are, and the general length of time it will take to pay the loan off based on the amount you plan to borrow.
Choices may include banks, credit unions, and other financial institutions. Both local brick and mortar and online lenders are options.
2. Ask plenty of questions
When speaking with a prospective lender, be prepared to ask a lot of questions. A good motto: ask, don’t assume.
Ask them about their application process. Make sure you understand what types of documents and information that they will be seeking from you. Understand any and all fees that you may incur. These might include origination fees or down payments.
3. Know what’s on your credit report
It’s important to check your credit reports before a prospective lender does (you can get yours for free at annualcreditreport.com) to avoid wasting your time applying for a loan for which you won’t qualify.
You will want to understand what is on your reports and be prepared to address any adverse items. Even better, you will have the chance to fix any issues ahead of time.
Equally as important is to check your credit report for mistakes. If there is a negative item reported that’s an error, you can contact the credit reporting agency to have it corrected. Even if this correction is not completed by the time the lender pulls your credit, you can show them the correspondence with the credit bureau and your efforts to have the situation corrected.
4. Have the documents required for loan approval ready
When it comes time to apply, you will need to be able to document your income, employment history, assets, any other debt you have, and other financial metrics they may request.
Most likely, you should have the following items handy:
- Recent income tax returns (generally two years)
- Recent pay stubs
- W-2 forms from the past two years
- A business financial statement and 1099 forms if you are self-employed
- A list of your assets and your liabilities, in short a personal financial statement
5. Be realistic about your situation
As with any financial transaction, you need to be realistic about your expectations. If your credit score is low or you have a spotty employment history, you might qualify for the loan you had in mind. You may be denied outright or the interest rate and terms may be less desirable.
In this case, you can look at options like a secured personal loan or even borrowing from a trusting family member. Other options here might include getting someone to cosign your loan or paying a much higher interest rate than you would like.
6. Keep an eye out for scams
Financial fraud and scammers are sadly all over the news today. Applying for a personal loan is no exception to this situation. There are any number of loan application scams, especially if your finances aren’t in top shape.
With the advent of online lenders, you need to be careful to protect yourself from fraudsters posing as lenders. Be careful about sending any money for origination fees or supplying personal financial information that could be used to commit identity theft.
Applying for a personal loan is like anything else — be confident going into the process. However, If you don’t receive a loan at terms that will work for you, or worse, if you feel that you are being taken advantage of, walk away from the process.
If you have a good credit score, earn a good salary, and pay your bills on time, you shouldn’t have any problems convincing a personal loan lender to do business with you.
Applying for a personal loan is a business transaction just like any other. As such, you will want to be prepared. Do your homework and get the required information and documentation together before applying. Have a businesslike attitude and be confident when applying for your loan.
Interested in a personal loan?
Here are the top personal loan lenders of 2017!| Lender | Rates (APR) | Loan Amount | |
|---|---|---|---|
| 1 Includes AutoPay discount. Important Disclosures for SoFi. 2 Important Disclosures for Citizens Bank. SoFi Disclosures1Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Finance Lender Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org) Citizens Bank Disclosures1Personal Loan Rate Disclosure: Personal Loan Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of April 1, 2017, the one-month LIBOR rate is 0.98%. Variable interest rates range from 5.97% - 15.72% (5.97% - 15.72% APR) and will fluctuate over the term of your loan with changes in the LIBOR rate, and will vary based on applicable terms and presence of a co-applicant. Fixed interest rates range from 5.99% - 16.24% (5.99% - 16.24% APR) based on applicable terms and presence of a co-applicant. Lowest rates shown are for eligible applicants, require a 3-year repayment term(see examples), and include Loyalty1 and Automatic Payment2 discounts of 0.25 percentage points each, as outlined in the Loyalty Discount1 and Automatic Payment2 Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. |
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 | 5.67% - 29.99% | $1,000 - $50,000 | Visit Upstart |
 | 4.99% - 14.24%1 | $5,000 - $100,000 | Visit SoFi |
 | 8.00% - 25.00% | $5,000 - $35,000 | Visit Payoff |
 | 5.97% - 16.24%2 | $5,000 - $50,000 | Visit Citizens |
 | 5.99% - 35.89% | $5,000 - $50,000 | Visit LendingClub |
 | 5.25% - 12.00% | $2,000 - $50,000 | Visit Earnest |
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