Must-Know Personal Loan Information for Applicants

When applying for a personal loan, you must keep some important personal loan information in mind to ensure that your application gets approved.

That’s what we’ll discuss in this article, as well as the different types of loans and their alternatives you can try. We’ll walk you through the application process and provide tips to help you maximize your loan. Let’s begin!

What Is a Personal Loan?

A personal loan is a flexible loan you can use for a variety of purposes. It has short to medium-term repayment schemes and provides fast funding.

A personal loan is a good idea when you need quick access to funds for various situations such as consolidating high debt, paying an expensive medical bill, or starting a business.

A lender can offer an unsecured personal loan, which isn’t backed by any asset or collateral. However, secured personal loans are also common, and they require you to use a bank account or asset as collateral in case you can’t pay it back.

Getting a personal loan usually requires you to pay variable interest rates. Repayment terms also range from a few months to a few years. Different types of personal loans exist, but lenders often give you enough leeway to use the funds for various purposes.

When searching for personal loans, you have to consider many factors, such as the interest rate you’re willing to pay, the time it takes to actually get the funding, and the documentation required. Luckily, it’s relatively easy to find resources on the best personal loans around.

Types of Personal Loans

Depending on your situation, you may favor one personal loan type over another. Before you apply, make sure that the loan type and its terms are suitable for you.

Unsecured Loan 

Unsecured loans are monthly installment loans without collateral. They are relatively easier to acquire if you have fair or good credit, though personal loans for bad credit are also common.

You can get as much as $100,000 if your rating is excellent, and the repayment length often ranges between 1 and 6 years.

This type of personal loan charges an interest rate of between 5% and 36%, depending on your creditworthiness.

Secured Personal Loan

Secured personal loans are backed by an asset, such as your car, savings account, etc. In case you default on the loan, the lender can acquire the asset to cover all or part of your balance.

For lenders, secured loans are less risky. For borrowers, you may get better interest rates or terms when obtaining a personal loan. As such, secured loans are among the cheapest personal loans around.

Lenders are also willing to consider people with minimal credit history if they can back the loan up with an asset. It’s also a great choice if you want to know how to get a first-time loan with no credit history.

Installment Loans 

Installment loan lenders let you borrow a set amount of money and pay them back over a fixed period of time. You can also decide how much you want to borrow and how much you want to pay every month.

This is different from revolving credit, typical examples of which are credit cards or lenders that offer a line of credit. As such, it’s a great loan for personal use if you need more flexibility when it comes to repayment terms, or when you can’t pay back at once.

Common examples of such loans are auto loans, mortgages, and student loans. Payments often last for years, depending on the interest rate, monthly payment, and principal.

Debt Consolidation Loans 

A debt consolidation loan combines all debts into a single loan that you have to pay monthly. You can use this to pay off credit cards, medical bills, payday loans, and other such debt.

Applying for a loan like this helps you reduce your overall monthly costs by avoiding multiple interests and fees.

It’s important to shop around for lenders that offer varying terms and interest rates to get the most out of this personal loan and to know whether it’s worth it to get a loan to pay off debt.

Co-Signed Loans 

A co-signed loan lets you add another party to your loan agreement. If you have a poor credit history, the lender can let you have a co-signer who will assume responsibility for the payments in case you default, serving as a kind of insurance for the lender.

With co-signed loans, you have better chances of getting approved. You may also get better rates and terms, and they can be secured or unsecured.

Remember, though, that the co-signed loan will appear on the third party’s personal loan information in the credit report. A missed or delayed payment can negatively impact them, so it’s important to assess the financial risks of taking out such a loan.

How Do Personal Loans Work?

Personal loans come with different terms and rates, but they’re generally offered as a lump sum deposited into your account or issued as checks.

In most cases, you need to make the monthly payments over a period of time with a fixed interest rate. However, some lenders offer flexible terms when it comes to the loan amount, time, and fees you pay.

Your creditworthiness plays a huge role in this process. Your credit score is crucial. Most lenders require you to have at least a 660 score. If your credit score is lower than that, you may still be eligible, but the interest rates tend to be higher.

They’ll also look at your past behavior to know how responsible you are with your finances. Besides your credit score, lenders may also look at your monthly income, work history, liquid assets, and other debts.

If you get approved, you’ll pay an interest rate on top of the principal amount of the loan. There may also be other fees you need to pay, such as application fees. Payments are usually reported to one or more credit bureaus. A credit bureau is a financial institution responsible for calculating and providing your credit report.

What You Should Know Before Applying for a Personal Loan

Before you file a personal loan application, you should be familiar with the following details. This will help you find the loan that best fits your situation.

  • Loan Amount – this refers to the total amount of money you’re borrowing from the lender. Quick personal loans usually range from $1,000 to $50,000.
  • Interest Rates – this refers to the monthly fees you’re repaying to the lender on top of the total loan amount. Rates vary, but secured personal loans often have lower interests than unsecured ones.
  • APR – also called the annual percentage rate, it refers to the interest charged on the loan for the whole year apart from the monthly rate. These rates can be as low as 0%, depending on your loan provider.
  • Loan Term – this refers to the number of months or years you’ll be paying for the loan. This personal loan information is crucial when determining how much you want to pay monthly, as longer terms mean lower monthly payments and vice versa.
  • Monthly Payment this refers to the total amount you must pay every month to the lender. This payment consists of the agreed-upon monthly installment fee on top of the monthly interest rate charged on the loan.
  • Unsecured Loan – this refers to personal loans that are not backed by any asset or collateral. As such, they tend to have higher rates than secured loans, but they also offer great flexibility and fast funding times.
  • Repayment Penalty – this refers to the fee you pay when you pay off the loan earlier than the agreed-upon time. Some lenders do not charge them, so be sure to check with your loan provider to know whether or not they charge this fee.
  • Late Fee – this refers to the fee you pay when you miss a payment under your loan agreement. You may also be charged interest on the overdue amount and administration fees.
  • Origination Fee – this refers to the fee charged by the lender for processing your loan application. This personal loan info is something you should be careful about, as some lenders can charge as high as 1% of your loan amount in such fees.

How to Apply for a Personal Loan

When applying for a personal loan, there are some things you need to do before you can get the funding. Below, we explain how to get a personal loan.

  • Get the Information on Your Credit Score

Your credit score plays a crucial part in your loan application, whether it’s secured, unsecured, or any other type of loan. You can check your credit score via any of the three credit bureaus, namely, Equifax, Experian, and TransUnion.

When you have your credit report, check for any errors or discrepancies. If you find any, dispute them. Having a flawless report increases your chances of getting approved for the personal loan and receiving better terms and rates.

  • Look for Lenders

After that, it’s time to look for lenders who offer fast personal loans. Be sure to check important details in their loan offers, such as the loan amount, interest rate, APR, fees, etc.

At the same time, make sure that you fulfill any necessary personal loan requirements. The documents the lender may ask you for may include government IDs, Social Security number, etc.

  • Compare Offers from Different Lenders 

After gathering information from different lenders, compare them. Find the lender that offers the highest loan amount with the best interest rates and repayment terms. Remember to choose the one that fits your situation best, even if it’s not necessarily the one that offers the highest amount.

To save time, check whether you meet the lenders’ personal loan criteria before contacting them. These include the credit score, minimum amount of credit history, annual income, etc.

  • Apply for a Loan

The last step is submitting the application. You can do this in person, but online lenders are developing faster and more efficient ways of submitting applications digitally. You may still have to communicate with their personnel via a phone call for any follow-ups or confirmation.

Knowing these steps and personal loan tips is important for securing your application. Meanwhile, you must also secure necessary documents to improve your chances of getting approved.

Documents You’ll Need When Applying for a Personal Loan

When applying for a personal loan, you must provide important personal loan documentation.

Loan Application 

This refers to the actual document you fill in and that also sometimes serves as the loan agreement. In this document, you state key details about yourself, your credit score, and your finances.

When filling out personal loans forms, make sure that all the details are accurate and complete and match the other documents you’ll provide. They may also use such information to verify your account and identity.

Proof of Identity 

The proof of identity refers to any identification or document you provide for the lender to verify your identity and prevent identity theft. The most common documents used as proof of identity are:

  • Driver’s license
  • Passport
  • State-issued ID
  • Certificate of Citizenship

These are the required personal loan documents that you must provide. Otherwise, the application will be denied.

Employer and Income Verification

Lenders may also ask for your employer’s details and documents that prove your income. This is to ensure that you can pay back the loan on time and in full.

In most cases, however, an online lender isn’t allowed to ask for your exact income amount, neither can they ask how you perform at work.

Common examples of files that fall under these personal loans documents are your pay stubs, payroll schedule document, or a signed letter from your employer.

Assets and Liabilities 

This refers to your personal financial statement, which reveals your assets and liabilities.

In general, assets are properties and finances you own that you can liquidate in case you fail to repay your personal loan. Liabilities are any debt or pending payments you haven’t made. As a loan borrower, it’s necessary to provide an accurate representation of your financial state.

Proof of Address 

You also need to provide proof of residential address when qualifying for a personal loan. Examples include utility bills, lease/rental agreements, or proof of insurance on your home. These documents help lenders assess your suitability for their personal loan.

Choosing Between Fixed and Variable Interest Rate Loans

Before applying for a personal loan, it’s important to know which type of interest rate fits your situation better.

Fixed Interest Rates 

Fixed interest rate loans have rates that stay the same throughout the loan’s duration. This is ideal if you want standardized and predictable monthly payments. It’s also the better rate choice when it comes to personal loans.

Variable Interest Rates 

When applying for a loan, you may also encounter variable interest rates. These are loans that adjust to market fluctuations. They tend to have lower average interest rates, but they’re also risky for borrowers as rising interest rates can greatly increase the cost of the loan.

Alternatives to Personal Loans

If personal loans don’t work for you or you don’t have enough personal loan qualifications, there are alternatives you may consider, such as payday loans and credit card cash advance.

Payday Loans 

Payday loans are typically short-term, high-interest loans that amount to $500 or less. You must repay them on your next payday. As such, they don’t ask for as much personal loan info or have as many requirements as other lenders.

Credit Card Cash Advance 

A credit card cash advance lets you withdraw from your credit card account, borrowing from your credit card to have cash ready. This may be advantageous if you’re looking for instant cash for an urgent expense. However, credit card companies often limit the amount and the APR is higher than regular credit card purchases.

Pros and Cons of Personal Loans

Pros  Can help with debt consolidation

Can be used for a variety of purposes

Fast approval

Longer repayment terms

Lower interest than credit cards

No collateral is required

Cons Affects your credit score

Origination fees

Prepayment penalties

Potential for scams

Wrap Up

The most important personal loans information to keep in mind includes everything that directly affects your qualification. For example, your credit score and financial status. You have to submit documents such as proof of identity, proof of address, and employment verification. Such information is useful when you need to find the most suitable personal loan deal.

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