Due to the falling interest rates of personal loans in recent years, more and more American citizens are choosing them as their first option when handling a tricky financial situation. Taking out a personal loan can be a great option, whether you need to pay for a medical treatment, fix or improve your home or pay for your wedding. The amount of a personal loan can vary between $500 and $100,000. Usually, personal loans do not require you to secure them with collateral, so there will be no risk of losing your home or vehicle.
If you are thinking of getting a personal loan, here are some things you may want to consider.
Normally, personal loans have higher interest rates compared to secured loans, or loans that are secured by a property. The annual percentage rate is very much dependent on your credit score. Therefore, if your credit score is good, it may be easier for you to get a loan with a lower annual percentage rate. Non-profit credit unions usually offer the loans with the lowest annual percentage rate and there is a chance they can give you a loan even if your credit score is not that good. So if you are thinking of taking out a small personal loan, credit unions are a good option to consider.
Your credit score, of course, is not the only thing that is being taken into consideration when you are applying for a personal loan. There are many loan lenders who will make their lending decision based on lots of different factors, such as your earning potential and job history.
Even borrowers with bad credit score can get a personal loan. However, their chances of doing that will be better if they have a co-signer or if they use some of their belongings as collateral. Do not forget that if you fail to repay your loan on time, you will be at risk of losing whatever you have used as collateral. It is in your best interest to repay the loan in full and on time. Getting a personal loan with bad credit score will most likely also mean a higher annual percentage rate. However, the annual percentage is still going to be a lot lower compared to that of a payday loan. It can go up to 300% along with other tricky fees.
Personal loans request requirements
In order to successfully complete your personal loan application, you will need to provide the following documentation:
- A valid form of ID – Social Security card, a passport, driver’s license or state ID
- You will need to provide information about your home address – utility bills, copy of lease or recent mail
- You will need to provide proof of past income – pay stubs, W-2 forms, tax returns or bank statements
You may also need to provide additional basic information such as:
- Your birth name and phone number
- Your social Security number
- Information of your monthly debt obligations (if you have any) such as student loans or rent
- Details of your income and employment
- Current living and email address
- Previous addresses
- The college you have studied in and your majors
Once you have provided the needed information, you will have to determine the exact amount of money that you would like to borrow. You may be asked to choose an exact time period for the loan repayment (usually between 2 and 5 years). Do not forget that the longer your loan repayment period is, the more you will have to pay in interest. So it would be best to not borrow an amount larger than what you actually need.
How to find the lowest rates for your personal loan
Before you sign any loan contract, here are some thing you may want to do first:
- Before you take out a personal loan, check if you can qualify for zero percent credit card. If you are able to get a credit card with zero interest for a year or even longer, that may very well be cheaper than a personal loan.
- If you have a property that you can use as a collateral for a secured loan, you may want to consider that as your first choice since a secured loan will have a lower annual percentage rate. However, you should remember that secured loans also bring higher risk as you may lose your property in case you fail to repay your loan.
- Before you apply for your personal loan, you should first try your best to pay off your credit card balance. When a lending company runs a credit check, your outstanding credit card balance counts against you, even if you managed to pay it all off at the and of the month.
- Before you apply for a personal loan, see what your other options are. It is important to examine all alternatives before making a decision. Compare interest rates and fees to find the best answer for your needs.
Personal loan benefits
Even though it is not the cheapest type of loan out there, a personal loan offers many benefits, such as:
With personal loans, you get fixed terms, competitive rates and a fixed monthly payment
- No penalty or origination fee for repaying your personal loan earlier than scheduled
- Quick and simple online application with a fast money transferring process
- With personal loans, you get a fast response on your loan application
- There is no collateral required for personal loans that range from $3,000 do $100,000
- You may get a discount with automatic payments if you are a second-time customer
Taking out a personal loan may be a good way to deal with a difficult financial situation. Just do your due homework before you sign any contract. Do research on the lenders you consider working with, see if there is an alternative for a personal loan which is more suitable for your specific situation. Always calculate your budget to make sure that you will be able to repay your personal loan on time.