Before you apply for a personal loan, it is recommended to be prepared. The following checklist helped some to make the appropriate adjustments or gather the correct documentation to apply for a personal loan.
Check Your Credit Score
The decision for funding a personal loan often depends on your credit rating or score. A credit score may range from 300 to 850. Therefore, the APR for the loan will depend, to a great extent, on the score and your financial history.
Again, if the credit score is lower, the interest rate will be higher than what it will be for a credit rating that is higher. You can usually receive the funds in 1 to 2 days by direct deposit in your bank account
Check Your Payment History
Most lenders will determine personal loan approval on 35% of your FICO score or credit rating, based on payment history. Naturally, a lender wants to play it safe, so he or she has to look for any red flags when it comes to your payment history.
For example, if you have several missed payments or late payments, you may need to make some adjustments. Make a commitment to paying all your bills on time to improve your standing in this area. It also helps to sign up for automatic withdrawals so you don’t forget to pay your monthly obligations.
However, with that being said, it does not mean you won’t get the loan for a few missed payments. If you have a good reason for missing the payments, the lender will also consider this factor. In addition, some lenders will still approve the loan, as they will just charge an interest rate that is a bit higher.
Check Your Credit Utilization Ratio
If you want to apply for a personal loan, you need to check your credit utilization ratio as well. This percentage represents the amount of outstanding credit card debt you have in relation to your credit limits.
The credit utilization ratio accounts for 30% of your credit rating or FICO score. Basically, a lender looks at how much credit you currently have and how much credit you have available. The lower the ratio, the better. When you compare personal loan companies, keep this factor in mind.
Know your Credit History
Besides checking your payment history and utilization of credit, you also need to review other factors that contribute to your credit score. These factors include the length of your credit history (how long you have been using credit) and the number of new credit applications you have recently completed. Longer credit history and applying for fewer credit offers will increase your score.
Access to a Co-Signer
A co-signer is a person who is added to the primary borrower’s loan application stating that they will be accountable for the loan amount and other associated fees if the borrower does not comply with the payments. Most borrowers require a co-signer especially if they can’t qualify for the loan by themselves.
This is because co-signers have a higher credit score and incorporating them in a loan application can boost the chances of getting the loan funds. In addition, the borrower may be subjected to lower interest rates and favorable terms. A co-signer does not have any right to the loan funds but will be accountable in case the borrower does not adhere to payments.
Have a Plan to Payback your Loan
Financial planning refers to how you intend to invest, spend, and use your funds to attain financial stability as well as fulfilling your short-term and long-term objectives. In a balanced financial plan, the revenues are equal to expenditures. This means that there are no budget deficits or budget surpluses.
For some people, it helps in forecasting expected income and expenses for the future. Thus, you might be in a better position to make wise financial decisions. It could also help you avoid taking a loan that cannot be paid back and lifestyle changes that will suit a balanced financial plan.
Consider a Secured Loan
When shopping for a loan, you may be confused about whether to take a secured or unsecured loan. However, a secured loan poses superior merits to unsecured ones. Some lenders also consider giving borrowers longer repayment terms which give you ample time to make the payments.
Getting a secured loan is usually easier due to the availability of collateral. Furthermore, secured loans usually come at lower interest rates. This is because the lender has less financial risk due to the presence of collateral.
Check Your Financial Data
In addition, you need to look at how you will appear to a lender in terms of work history, current earnings, and what you currently have in total debt. The lender merely wants to know if you can repay the loan once you receive the money. Therefore, if you make more money, have more assets, and have acquired minimal debt, you will look better in a lender’s eyes.
Check Your Current Credit Score and See What Activities Have Affected Its Rating
The main thing you have to keep in mind when applying for a personal loan, is your credit score rating. This rating is important, as it determines how much interest you will have to pay on the loan amount. When you compare personal loan companies and review their services, they will give you the interest rates for specific credit ratings.
Check to Make Sure You Have the Appropriate Information and Documents
When applying for a personal loan, you should produce documentation that includes a government-issued I.D. (for proof of age and residence); tax information for earnings; payment stubs; and any other data that will help you secure a loan.
For example, some personal loan lenders require that you show proof of auto insurance and a vehicle title when applying for a personal loan. Based on the lender’s requirements, have this type of information ready when applying for a personal loan.
If you prepare yourself properly, you will know what to expect and feel more confident when facilitating personal loan funding online. Using this source of funding can bode well for you as long as you can use the money for something that will improve your lifestyle.
For all of these helpful tips and more, it is often recommended to follow a personal loans guide to keep information clear, structured, and relevant.