If you require money to consolidate your credit card debt or to move abroad or even pay for your child support, a personal loan can help you to meet your expenses without hampering your reserved fund in the bank.
Most personal loans are considered unsecured loans and they don’t require collateral such as an asset. Personal loan amounts may range from $1,000 to more than $50,000. Personal loans should be paid back through fixed monthly payments. The loan tenure might last over two to five years. If the interest is quite lower than any credit card or payday loan, the lender might consider your credit score before giving you a lucrative offer.
Before taking out a personal loan, you must focus on a few factors.
#What are the factors to focus on?
Every loan application is different by nature, and so is the application process and criteria. But if you want to get a personal loan, most lenders might ask you to focus on these factors before they approve your loan application.
The factors are:
a) Your income
While checking personal loan applications, almost every lender would look for a borrower who has a steady income. This is to ensure that the borrower can make the minimum monthly payments as per the loan contract. Some lenders do not consider the income of a borrower, but bigger loans might require that you make a minimum income before opting for a new personal loan.
Regardless of the repayment period, lenders would only care about only one thing, can you make monthly loan payments after covering your existing debts and monthly expenses? This is where your debt-to-income (DTI) ratio comes into focus. This lower ratio gives positive feedback to lenders that your current income is sufficient to make more debt payments. The lower your ratio, the bigger your chances of getting approved for a personal loan.
b) Your employment status
Your employment status may be considered eligible for a personal loan. You may need to work full-time to fulfill the criteria for bigger personal loans. But if you’re employed part-time or are self-employed, you’ll still have some options left.
If you’re unemployed, many lenders may accept applicants who receive government benefits as a form of income. But you’ll still require to prove your affordability to lenders that you can repay the loan while on those benefits.
c) Your job title
Though you are well salaried and employed, some lenders might also require information about your job title. Some lenders use this information to cross-check your job title with the salary you have mentioned in your personal loan application. Lenders may call it protection against probable fraud.
Lenders may also use your job title information to determine what your interest rate will be. The higher the job profile, the lower the rate will be.
d) Your credit history
A lender is always looking for an applicant with a good or excellent credit score, along with a solid credit history. Normally these types of applicants remain regular on their debt payments. A high credit score means you are the ideal borrower, especially if you’re applying at a bank. If your credit score isn’t high enough, there are bad credit loan options for you, too.
e) Your assets, debts, and monthly expenses
The lender might ask you to list your assets, debts, and expenses on your personal loan application. Lenders may use your debt and income to determine your debt-to-income ratio (DTI). Additional income may boost your loan application, but too much debt can get your application rejected.
Now we are going to check out the steps for a personal loan application.
3 steps to applying for a personal loan
a. Review your credit report and score
Reviewing your credit report once per year is a good habit. You can get your free credit report every year at AnnualCreditReport.com. You should periodically review the entire report to find any errors or negative items.
You should remember these factors while reviewing your credit report:
- (i) Payment history
- (ii) Debts you owe
- (iii)Length of credit history
- (iv) Credit mix
- (v) Number of new credits
If you have a low or average credit score, and for that reason, you are not getting approved for a personal loan, you may pay off your old debts first to improve your score. You may use popular debt repayment methods such as the debt snowball or debt avalanche methods until your score improves to qualify for a personal loan.
b. Find suitable lenders and get prequalified
Finding a suitable lender is one of the most important factors of the personal loan process. By using the internet you can find popular and trustworthy lenders. By submitting online forms you’ll receive competitive loan offers to apply for. You can also apply directly with lenders on their website or directly at a bank branch.
To get pre-approved, you may be asked for a few detailed information, such as:
- (i) Social Security number
- (ii) Income
- (iii) Monthly debt payments
- (iv) Date of birth
- (v) Address, email, phone number
- (vi) Previous addresses
- (vii) Employer’s name, work address, phone number, etc.
You may not pre-qualify for a loan due to a low credit score; so make sure you keep that thing in mind.
c. Compare quotes and get your paperwork ready
After getting pre-qualified for a personal loan, the next step is to compare quotes to find the best lender. You must read the agreement papers carefully to make sure there aren’t any hidden conditions that may go against you in the future.
If you see that you have made the right choice and you’ve been offered a good interest rate, easy repayment terms, and affordable monthly payment option, make sure to gather all the supporting documentation as soon as possible. Coordinate with your lender to process your application.