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 2018!
|Lender||Rates (APR)||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|7.73% - 29.99%||$1,000 - $50,000|
|5.37% - 14.24%1||$5,000 - $100,000|
|8.00% - 25.00%||$5,000 - $35,000|
|4.99% - 16.24%2||$5,000 - $50,000||Visit Citizens|
|5.99% - 35.89%||$1,000 - $40,000||Visit LendingClub|
|5.25% - 14.24%||$2,000 - $50,000||Visit Earnest|