According to the U.S. Chamber of Commerce, personal loan balances doubled from 2015 to 2019. By 2019, personal loans accounted for around $143 billion in debt, and there’s a good reason that many people were turning to these versatile financial tools.
Find out more about personal loans and what to do when applying for a loan below.
What Is a Personal Loan?
A personal loan is exactly what it sounds like: it’s a loan that can be used for personal reasons, typically at the borrower’s discretion within certain reasonable restrictions that vary by lender.
Personal loans are usually installment loans. That means you get a certain amount of funding at an agreed-upon interest rate and terms and then make monthly payments on the loan (like you would on an auto loan) until you pay it off.
What Can You Use a Personal Loan for?
It’s a good idea to know why you are applying for a loan. Lenders may ask you to provide a reason that you are completing an application for a loan with them. In some cases, lenders themselves might have rules about what types of loans they might approve — some personal loan lenders don’t approve loans for debt consolidation, for example.
For the most part, though, you can typically find a personal loan option to cover a wide variety of expenses. Here are some common reasons people might apply for a personal loan:
- To cover a minor or major purchase, such as a new refrigerator or computer
- To pay for unplanned expenses, such as air conditioning or car repairs
- To pay off higher-interest debt, such as credit cards
- To help build credit
How to Get a Personal Loan from a Bank or Other Lender
To get a personal loan, you must complete an application for one.
Every lender has different qualification criteria. Some will check your credit and make a decision based primarily on your credit score and credit history; others will check your credit but use it as only one factor to evaluate you as a borrower. Still, others may not check your credit at all.
Regardless of lender requirements, here are some good personal loan process steps to follow if you plan to apply for credit:
1. Understand your own credit report.
Before you apply for a loan, it’s a good idea to understand where you stand, financially speaking. Consider checking your own credit reports so you know what lenders might see. This also gives you a chance to correct any serious issues or errors on the report before you apply for loans.
You can get a free copy of your credit report from each of the major credit bureaus via AnnualCreditReport.com. Since there are three major credit bureaus — TransUnion, Equifax and Experian — you could get one free credit report every four months if you time it correctly. And through April 2021, you can get one free report weekly due to additional assistance provided by the bureaus to help people manage their finances during the COVID-19 pandemic.
2. Research loan options before applying.
Every time a potential lender pulls your credit for the purpose of evaluating you for a loan, it causes a hard inquiry on your credit report. Each recent hard inquiry — those from the past year — can cause a small drop in your credit score.
So, shopping around by simply completing application after application to see what sticks can hurt your credit score. Instead of doing it that way, take your time and research loans first. That way, you can apply for only one or maybe two loans that you are fairly certain will meet your needs and that you have a good chance of being approved for.
3. Align loan expectations with your budget.
Whether you have great credit going into a personal loan or you’re actually looking to apply for a loan with bad credit, you certainly don’t want to end up with worse credit when the process is done. The best way to ensure your personal loan doesn’t impact your credit negatively in the long term is to be certain that you can make your payments on time consistently. Make sure you know what your current income and expenses are and how much you can afford to budget monthly for the loan payment.
What to Bring When Applying for a Loan
Once you’re ready to apply for a loan, you’ll need to gather some information for the application process. What you’ll need in order to apply varies by lender, but here are some common requirements:
- A photo ID. You may need to demonstrate that you really are who you’re claiming to be. Unfortunately, there are people who use the credit histories of others to get loans in their name, which is why most lenders want to see a valid photo ID, such as a driver’s license. That’s true whether you’re applying in person or online; in the latter case, you may need to take a picture of or scan your ID and send it to the lender for review.
- Proof of income. Credit scores aren’t the only thing lenders care about. They also want to know that you make enough to be able to pay back the loan. You may need documents that demonstrate you have consistent employment and earn a certain amount. Common ways to provide verification of income include W2s and paycheck stubs. In cases where you’re self-employed or have other nontraditional forms of income, you might need to show bank statements.
- A bank account in good standing. If you’re applying for a loan online, the lender needs a way to transfer funds to you. Many simply require that you have a checking or savings account so they can transfer the money. Some lenders, including Wise Loan, can process funds as quickly as the same day when you’re approved for a loan.
- Personal information. You may also need to provide personal information when completing the application. That can include your name, address, phone number, email address, or even your Social Security number. What information is required depends on the application process of the lender.
How to Apply for a Loan with No Credit
If you don’t have any credit history or your credit history is very short because you’re young, you might still be able to apply for a personal loan. Some personal loans are specifically designed for people with little credit history and are meant to help them build credit.
To apply for a loan with no credit or with bad credit, look for lenders such as Wise Loan which don’t necessarily require good credit to approve you. You’ll also want to ensure that the lender does report to the credit bureaus so your timely payments will positively impact your credit history. Make sure you have gathered information to prove your income and ability to repay the loan and shoot for a reasonable loan amount at first. Lenders are more likely to approve those with no or poor credit for smaller amounts to start with.
Apply for a Personal Loan Today
Wise Loan’s personal loan application process is fast and easy. It takes around 5 minutes to complete the process, and you can do it all online. If you’re ready to apply for a personal loan, complete the Wise Loan application now.
The recommendations contained in this article are designed for informational purposes only. Essential Lending DBA Wise Loan does not guarantee the accuracy of the information provided in this article; is not responsible for any errors, omissions, or misrepresentations; and is not responsible for the consequences of any decisions or actions taken as a result of the information provided above.
The post What Do I Need to Apply for a Personal Loan? appeared first on Wise Loan.
Frequently Asked Questions
With a 500 credit rating, can I get a loan for payday?
Payday loans should not be considered for those with poor credit ratings. These loans have high-interest rates that can lead to long repayment periods. People who qualify for these types of loans should understand all the terms associated with them.
Many lenders offer special financing options to customers with poor credit scores that enable them to quickly get the funds they need. These options include:
- Installment Plans
- Extended payment schedules
- Lower APRs
- Applications without fees
- Cash advances
While there are some exceptions, the general rule is that those with poor credit should not apply payday loans as they are costly.
What is a payday loan?
A payday loan is the most popular type of loan. This short-term loan is taken against future paychecks. These loans typically have higher interest rates than other personal loans.
The borrower must repay money within 2 weeks of receiving the next paycheck. If he fails to do this, he may lose all or part of the amount borrowed.
Payday lenders often charge high fees for these short-term loans. People who have financial difficulties are also a common target. It is easy for borrowers to get into debt through this method.
What is the best loan for people with poor credit?
Asking around at the local bank can help you find a payday lender. They will be happy to assist you if they know of someone who might have one. You can also search online for payday lenders if you don’t wish to speak with them directly.
Google can also be used for “payday Loan” searches. You will be directed to several websites that offer payday loan services, but read the fine print!
What does it cost to borrow $1000 with a payday lender
A typical loan from the payday lender would cost approximately $300. The exact amount depends on several factors.
- Your current balance
- How long the loan has been in your name
- The amount of the payments due
- You can choose to pay back principal or only interest
- Any late fees charged
- Which type of loan (e.g., installment or cash advance)?
- Additional charges like an application fee
- Tax rate
- State laws regarding payday lending
- Other fees imposed by the lender
- Interest rate
- Terms & Conditions
- Repayment plan
- History of payments
- Credit score
- Ability to repay
- Current income
- Situation on the job
- Monthly expenses
- Income tax withholding
- The amount owed in the past 30 days
- Age of the applicant
Statistics
- Those protections include a cap of 36 percent on the Military Annual Percentage Rate (MAPR) and other limitations on what lenders can charge for payday and other consumer loans. (consumerfinance.gov)
- By comparison, APRs on credit cards can range from about 12 percent to about 30 percent. (consumerfinance.gov)
- A typical two-week payday loan with a $15 per $100 fee equates to an annual percentage rate (APR) of almost 400 percent. (consumerfinance.gov)
- For example, CashUSA’s payday loan APRs range from 5.99% to 35.99%, placing them well within the averages for most major lines of credit, including credit cards and bank loans. (timesunion.com)
- The loans usually can be rolled over for additional finance charges, and many borrowers—as high as 80% of them—end up as repeat customers.89 (investopedia.com)
External Links
americanbanker.com
consumerfinance.gov
How To
Why do we require installment loans?
Installment loans, which are short-term loans, require a minimum monthly payment. These loans usually last for one year and offer flexible repayment options. It’s very convenient because it allows you to repay your loan when you want and have the money available.
Most people who apply for these loans are looking to make some quick cash and don’t care too much about their credit score. If you aren’t eligible for traditional bank financing, an installment loan can be a great option.
Before you apply for an installment loan, it is important to carefully calculate how much money you will need. You need enough capital to cover the cost of interest and fees, plus another month’s worth of payments.
You’ll typically receive the funds within 24 hours when you get approved for an installment loan. The average processing fee for an application is around $40. This service is usually charged by most lenders, so make sure to shop around until your find the best deal.
You might need an installment loan if your monthly expenses are not being met. This loan is best for people with bad credit who are experiencing financial hardship.
A installment loan can be a great option if your application has been rejected by traditional banks. Your income, work history, assets and debts will all be examined by your lender. If you can prove that you can repay the loan, the lender will approve you for less than what you owe. You won’t be in a position to repay your entire debt instantly. Instead, you’ll have to pay off a portion of it every month.
With an installment loan, you will be responsible for paying back the entire balance in full before getting a refund. Most lenders do not offer grace periods where you can make late payments.
