It happens. Payday is still a few days away, and you have a long grocery list, the car needs an oil change, and the dishwasher is soaking your kitchen with water. It’s tempting to throw in the towel and swipe a credit card to pay for those purchases.
If you take the time to think that through, you will realize you may be setting yourself up for failure with that route. Money is often spent more wisely when we have the cold hard cash in hand rather than a piece of plastic available to us.
This is where a personal loan may come in handy. You find yourself in a situation where you know you need the cash, but you aren’t sure how to get it. As you will see, this type of loan can be a great option for a variety of reasons. It can allow you to get back on track and out of whatever emergency situation you may have found yourself in.
The idea of a personal loan sounds great. Someone willingly hands you money, and you’re able to get on track with your finances. Not quite. Personal loans aren’t ideal for things like a car or a home. These are unique circumstances that have a different process for getting financing.
This type of loan is also an unsecured loan. This means that there is nothing being held as collateral for paying the loan back. You are generally approved on the basis of your credit score and whether or not you seem trustworthy. The risk that lenders take with this pushes them to engage a higher interest rate than with a secured loan. This helps act as a deterrent in case something happens and you are unable to pay back the money. You may also need a higher credit score than what you normally would for this reason.
One last thing to remember about these loans is that they are considered installment loans. This means that you borrow the money and receive the full amount at that time. Then, you are given a payment schedule for how you will pay back the loan. This may include a payment every two weeks until the loan is paid off, or there may be other terms.
The last thing to be discussed prior to working on your application for a personal loan is the concept of debt consolidation and peer-to-peer lending. Personal loans may seem like a great idea for debt consolidation, but they are generally not considered as effective for use when it comes to this.
The only way a personal loan would be a good choice for debt consolidation is if you are able to safely manage the repayment plan. Often, people tend to have a large amount of debt or are unable to keep up with the payment schedule. This pulls them further into debt, which is what would happen if you used a personal loan for debt consolidation. If your amount of debt is lower and you know for sure that you are able to keep up with the payment schedule, then it may still be a good idea for you.
On the other hand, peer-to-peer lending is typically done online. A company runs a service that connects buyers with independent lenders as opposed to a personal loan where you work to connect yourself with the proper lender. P2P loans are usually unsecured loans, but that isn’t strictly the case. These loans also provide a lower interest rate compared to personal loans.
After you’ve determined that filling out an application for a personal loan is the best option for you, it’s time to take a look at your credit score. When you make the official request to apply for a loan, lenders will almost always check your credit score. This is done to get a snapshot of how well you manage your money. A higher credit score means you are more likely to be responsible while a lower one means that you may struggle with paying off debts.
The lender you choose will have a minimum credit score that they want you to have; otherwise, your loan will be denied. This means that you should know what your credit score is prior to filling out the loan application to save yourself extra work. In addition, having a lender check your credit score is considered an inquiry. It’s important to keep the number of inquiries you have to a minimum as this can negatively affect your credit score.
One easy way that you can check your score is by visiting AnnualCreditReport.com. This allows you to check the three credit bureaus each year to see where you stand in this respect. You should also check these reports each year even if you aren’t looking for a loan. It helps keep you protected against incorrect information on your report and potential identity theft.
This ties into learning your credit score before you start sending in applications. One thing you’ll want to look into is the lender’s minimum credit score that they accept for applications. This will tell you if your application is going to be acceptable before you apply and subsequently receive the inquiry on your credit report.
Another thing you are going to want to consider is the repayment schedule. If you are taking out the loan because of an emergency situation, be sure to take only the minimum amount you need in order to make the payments lower and more manageable. Your credit score comes into play here because you may be able to get a lower interest rate if your credit score is higher, indicating that you can manage your money well. Lenders will see this and be more willing to work with you because they can feel more confident that they will receive their money back.
The last thing you want to check into is the lender’s reputation for treating their customers well and delivering fair service. A trusted source like InitialLendingGroup.com will have a reputation for providing quality service, so you can rest assured that your transactions will be handled securely. Some companies may not offer this same guarantee and could end up making matters worse for you. Research is crucial at this step of the application process.
When you are considering how to apply for a loan, there may be some steps that you are expecting. One of those steps should be providing documentation that can be used to verify your identity. It’s easy to provide a Social Security number and the required information for a lending company to check a credit report. You must also be able to prove that the given Social Security number belongs to you.
Typically, lenders want to see some sort of valid photo ID. This will enable them to verify that you are the person you claim to be.
Some other information you are going to need to collect with your application is proof of income and proof of monthly expenses. Lenders want to see a clear depiction of your flow of money before they agree to approve you for a loan. You will need to show that you have an adequate income coming into your home and that your current expenses, like rent or mortgage, aren’t taking away a large portion of that income.
By showing your income and expenses, you can prove to the lender that you will be able to afford the repayment plan without falling behind and getting into a worse situation. You may also be asked to provide employment information, including how long you have worked for that company. The overall point of providing this information is to represent your finances in an accurate and a positive light for the lender. Having this information ready ahead of time can make the application process go much smoother and quicker.
The last step in applying for a personal loan is to use all of the information you have gathered up to this point and get started with the application process. An online lending source like InitialLendingGroup.com can help you with this process and answer any questions you may have. They are also able to offer other types of loans should the situation arise. These could include things like business loans or startup loans.
As previously stated, you’ll want to complete your research into the appropriate company prior to putting in your application. A short-term loan can easily begin to boost your credit score as long as you are making the payments on time and in the appropriate amount. This means that you may be able to forge a long-term business relationship with the company and that they will be more likely to approve you for loans in the future since they know you can be trusted with money.
If you prefer to get your loan in person or you have more questions, it may be a good idea to make an appointment at your local bank. Their loan officer can help make sure you have everything in order and provide you with additional resources if you aren’t quite ready for a loan.
As you can see, there are only a few steps involved in applying for a personal loan, but each step is important in its own way if you want to make sure you get approved for your loan request. The first one is going to be checking into your credit score. This can easily be done for free, and the score you currently hold may be surprising to you. There are ways to boost it over time if you need to, but a personal loan can also do this for you. Next, you will need to make sure you are applying for a loan that you will likely qualify for. Each application makes its way to your credit report, and too many inquiries can adversely affect your credit score.
After you have decided on a lending company, make sure you have your paperwork in order. You’ll need a valid photo ID as well as proof of income and monthly expenses. Some lenders may also require additional documentation such as a Social Security card. This information will help the lender make a decision for you more quickly so that you can get on with whatever it is you need the money for.
The more you prepare, the easier the lending process will be.
Chris Fuller went to the University of South Florida and has worked in the financial sector for over 20 years. He has extensive experience in all aspects of personal and small business lending, from personal loans, equipment finance to cash flow based solutions for small mom and pop businesses, and large corporations.