Personal Loans: Where to Apply and How to Make Sure You Won't Be Declined

Jan 01, 2024 01:50 AM EST

A personal loan might give you a lifeline during an emergency or help you manage an outsize bill. To apply for one, you won't need to sell your soul. Rather, you'll have to give permission for a credit check, authenticate your identity, and present evidence of your income.

You can prequalify, or verify your eligibility and possible rates and terms, before committing to a personal loan with a reputable lender. Taking this step might offer you a lay of the land and help you determine whether you need to repair your credit or locate a cosigner to boost your application.

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A personal loan might give a lifeline during an emergency or help you manage an outsize bill. To apply for one, you won't need to sell your soul. Rather, you'll have to give permission for a credit check, authenticate your identity, and present evidence of your income.

A personal loan is a sum of money that you get from a bank, credit union, or internet lender and have to pay back over time with set monthly installments. You will also be required to pay interest to the lender for the privilege of borrowing money with each installment.

Additionally, certain personal loans include costs. Primarily, an origination charge, which compensates the bank for the expenses required in originating the loan, may exceed 8% of the total loan amount.

Applying for A Personal Loan: A Guide

Although the procedure may differ throughout lenders, the following are basic pointers for obtaining a personal loan:

Examine loan specifications, company history, and eligibility restrictions to reduce the number of lenders you may choose from.
Prequalify: This avoids a harsh credit investigation and lets you evaluate terms and rates from a few different lenders. Make careful to compare savings as well. For instance, some lenders may lower your interest rate by 0.25 percentage points if you sign up for automated payments.
Verify your ability to repay the loan by estimating your monthly payments using the personal loan payment calculator provided by your potential lender. Next, make sure you have adequate cash flow to meet your obligations by reviewing or creating your budget.
Think about a co-borrower or cosigner: If your poor credit prevents you from qualifying or if you're receiving quotes for exorbitant interest rates or small loan amounts, think about applying with the help of someone who has good credit. Remember that if you miss payments, they will be held accountable and your credit may suffer as a consequence.
Select a loan offer and file an official application: Select the loan that best suits your needs and send in any necessary paperwork, such as utility bills, pay stubs, and tax returns. Your credit score may temporarily decline somewhat at this stage as the lender will run a rigorous credit check.
Sign your loan paperwork after carefully reading them and confirming that your final rate is what you are pleased with. Prior to completing your loan, it is imperative that you comprehend the terms of repayment and are informed of any associated costs.
Obtain the money: Hold off till the money reaches your bank account. You can spend the money as soon as you obtain it, but remember to set aside money for payback.

If you are not granted a personal loan, what are your options?

According to Kyle Enright, president of lender Achieve, "the lender must provide an adverse action notice if an applicant is denied." This will explain the rejection's rationale. After that, you can perform the necessary actions before reapplying.

Poor Credit Rating

By paying off debt, paying your bills on time, and fixing mistakes on your credit report, you may raise your score. As an alternative, think about having a co-applicant for an unsecured personal loan or a secured loan where collateral is needed rather than excellent credit.

High Debt Balances

If your debt is too much for you to handle, think about signing up for a debt management program provided by an authorized non-profit provider of credit counseling services

Alternately, apply a debt repayment plan such as the debt avalanche approach, which prioritizes paying off your loans with the highest interest rates first.

Unpredictable Employment

If you haven't had a regular job or constant income-perhaps as a result of working for yourself, changing jobs, or taking time off-you might choose to apply with a different lender who will be more understanding of your circumstances.

Insufficient Income

Make sure you have listed all of your sources of income. If you are still not eligible, think about applying with a another lender that has less stringent income criteria. The next time you apply, "you can also apply for a smaller amount," Enright added.

Incomplete Application

The lender will probably ask you for the missing information if you did not submit or complete all of the necessary documentation. You may get accepted after providing the lender with the necessary information.