What is Personal Loan?
A personal loan is a money you borrow for any purpose including debt consolidation, unexpected medical bills, a new appliance, a vacation, or even a student loan.
You pay the money back including interest in monthly installments over time, usually two to five years.
Most personal loans are unsecured. That is; they are not backed up by collateral.
How to Qualify for a Personal Loan
There are many steps toward getting qualified for a personal loan and one of the first steps is making sure the loan is right for you.
#1. Decide how much to borrow
Remember that when you borrow, you don`t just pay the original money you borrow, but interest is also added to the payment.
The more money you borrow, the more the interest value adds up.
There is no need to pay interest on the money you don`t need. So try to borrow only what you need so you can easily pay up faster.
#2. Know your Rights Under Regulation Z
In 1968, the federal reserve board implemented Regulation Z, which in turn created the Truth in Lending Act, designed to protect consumers when making financial transactions. Personal loans are part of that protection. This regulation is now under the auspices of the Consumer Financial Protection Bureau.
#3. Clean up your credit
Credit scores are major consideration in personal loan applications. The higher your score, the better your approval chances.
Check your reports for errors, common errors that may hurt your score include wrong accounts, closed accounts reported as open, and incorrect credit limits according to the consumer financial protection bureau.
#4. Rebalance your debts and income
The loan applications ask for your annual income, and you can include money earned from part-time work. Consider starting a side hustle to complement your income or work towards a raise in your full-time job.
Consider selling liquid assets such as stocks held in taxable accounts. Using the proceeds towards high-interest consumer debt should get you a higher rate of return.
#5. Consider a co-signer
If your credit scores are in the “fair” range, adding a co-signer with strong credit and income can increase your chances of approval.
Because the co-signer is also responsible for repaying the loan. It`s critical to co-sign with someone who can afford the risk.
You may have every intention of repaying the loan but you can`t predict a job loss, disability, or any other havoc that can happen.
#6. Find the right lender
Most online lenders disclose their minimum requirements for credit scores and annual income and whether they offer options like co-signers.
If you meet a lender`s minimum qualifications and want to see estimated rates and terms, you can pre-qualify for financing.
#7. Check your Eligibility
Visit the lender’s website or make phone calls to determine if your financial profile makes you eligible for a loan from the lender.
Where to Obtain Personal Loan from
Personal loan sources are divided into two :
Those with a banking license or charter
#1. Banks and Credit Union
Local banks and credit unions are the first places people think of when contemplating a personal loan.
There, you will be able to meet the loan officer in person. The operation will be personalized and the officer will be able to guide you through the process smoothly.
The Credit Unions loan process tends to be less rigid than that of the bank, and the interest rate is usually lower.
#2. Non-Banking Financial Institutions
They may include online brick-and-mortar companies, insurance companies, lenders, payday lenders, and other non-banking institutions.
Finance companies typically charge higher interest rates than banks and credit unions but they may approve you for a loan when a bank wouldn`t.
Check out the details of the Loan
Now, this is also a very important part of the loan. Make sure you check the details of the loan and that it suits you perfectly well for easy payment.
- Expected loan amount, APR, Monthly payment, Loan term
- Fees and Penalties
- Types of interest
- Unsecured or secured
- Automatic withdrawal
- PrePayment penalties
- Fine print
These above are the basic things to look out for when checking for the details of a loan.
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