If you want to apply for personal loans, the first thing you should do is establish a clear aim for the money you borrow. This may seem simple enough, but the sheer variety of loans often proves to be overwhelming. Ranging from car payments to credit card debt, loan types are designed with specific purposes in mind. The wrong loan may cost you far more than you initially borrowed, so think wisely before making that decision.
Apply for a personal loan if you are:
- Looking to make a big purchase
- In the process of paying off high-interest debt
- Paying for your education
- Financing a wedding
- Carrying out home improvements
- Paying off medical bills
What are Personal Loans?
Banks, credit unions, and independent online lenders often offer personal loans: lump-sum installment loans ranging from $1000- $50.000.
Personal loans are unsecured, implying no collateral in securing funds. With other loan types (car, home, etc.), the property purchased often serves as collateral for the lender. With personal loans, however, all you need is a borrower or a cosigner with good credit. If your credit score is on the lower scale and you are unable to find a cosigner, you might not qualify for an unsecured personal loan. However, do not fret, as many lenders offer secured personal loans that are backed by assets like cars and houses.
The repayment process is carried out in installments over a fixed period of time (typically 2-7 years). The term (amount of time needed to repay your debt) is unique to each lender and is noted in the loan agreement. A borrower is expected to pay off the loan on a monthly basis, with interest rates added on top of the principal amount.
Interest rates are unchangeable and determined in the loan agreement, so no surprises are expected while paying back the loan. In addition to interest, however, potential borrowers should not disregard the loan’s APR (annual percentage rate). APR includes both the interest rates and other fees involved in your general loan. These may include discounts, broker fees, and rebates. Personal loan lenders offer APRs ranging from 6% to 36%, making careful comparison a must while applying. When selecting a personal loan, a borrower should consider a loan’s APR rather than the interest rate to land on a choice best suited for them.
While used for almost any purpose, some lenders can impose restrictions on your personal loan.
How To Apply
If you wish to take out a personal loan, the process will usually include the following steps:
- Providing potential lenders with information such as the purpose and amount of the loan as well as your personal details
- Lenders viewing these initial details and deeming you “pre-qualified”
- Browsing for the best personal loan suited for your particular situation
- Submitting the formal application including your Social Security Number, photo ID, education history, proof of employment and address, etc.
- Getting approved, often on the same day