Personal Loans 101: What you need to know
Home loans, auto loans and student loans involve borrowing money for a specific purpose. But what if you need funds for some other reason? Maybe you want to consolidate your credit card bills into one loan with a fixed rate and term. Or maybe you need some extra cash because you're getting married, starting a family or planning a trip around the world. Whatever your reason, a personal loan may be a smart option to consider.
What Is a Personal Loan?
A personal loan is a specific sum of money that you borrow for a set period of time. This amount might be as small as $2,500 or as large as $35,000—or more.
Most personal loans are unsecured. That means you don't have to own an asset, such as a home, car or boat, to qualify. If you do have an asset that you want to pledge as collateral for a secured personal loan, you may qualify for a lower rate.
Benefits of Personal Loans
Like any form of debt, a personal loan is a serious financial obligation. It's also one with many benefits.
- Affordable — Compared with credit cards, personal loans typically offer lower rates that could help you save money and pay off your debt sooner.
- Predictable — Unlike credit cards, most personal loans come with a fixed rate and a fixed monthly payment. That means your rate and payment will never change even if market rates are higher.
- Flexible — Whether your goal is debt consolidation or new spending, how you choose to use your personal loan is up to you. You don't have to use the funds to buy or improve your home, buy a car, or pay college tuition or other student expenses.
3 Tips to Improve Your Chances of Getting Approved.
There's no one factor that determines whether you'll be approved for a personal loan. Rather, there are multiple criteria that lenders evaluate. That means you may have several good opportunities to improve your chances of being approved.
Review your credit reports before you apply.
The information in your credit reports is used to generate your credit scores, which typically are a factor in whether you'll be approved for a personal loan. If you spot any errors in your credit reports, you can ask the credit bureaus to correct them.
Stay current on your other loans.
Making timely payments on your credit cards, car loan, or any other debt you have can boost your credit score. A higher score may help you get approved for the personal loan that you want.
Ask for a pay raise or start a side hustle.
You don't need a six-figure salary to qualify for a personal loan, but you do need to demonstrate that you have a steady income to make the payments for a personal loan as well as any other debt you have.
How to Apply for a Personal Loan
The first step to getting a personal loan is to complete a loan application online or in person at your bank. You'll need to provide some personal information, such as your home address, Social Security number, date of birth, monthly income, and employer's name and address. You'll also need some form of government-issued ID, such as a driver's license, U.S. Passport, or state-issued ID.
If you're applying with a co-borrower, such as your spouse or another family member, your co-borrower will need to provide the same information.
After you complete your application, your lender will review the information you provided, access your credit, and let you know if your loan has been approved.