How to Get a Personal Loan
If you’re in a financial pinch or would like some money to fund a home improvement project or boost your business, a personal loan is worth investigating. We’ll go over exactly what a personal loan is, what it can be used for and how to go about getting one.
What is a Personal Loan?
One of the major draws of a personal loan is that unlike an auto loan or student loan, it’s personal. Personal loans work for a number of things and unique situations: for a small business, to make a major purchase, for home improvement, car expenses, medical expenses, family planning or to consolidate debt.
Besides its flexibility, personal loans are unsecured, meaning it doesn’t require that you offer collateral to back it up. What’s more, personal loans usually come with a fixed interest rate. In other words, the interest rate won’t change during the duration of the loan and your monthly payments will be the same every month.
How Much Will a Bank Give Me for a Personal Loan?
Different lenders, including banks, credit unions and online lending companies, have their own criteria for creditworthiness. Based on this criteria, they’ll give you loan options and amounts.
Different lenders will require different credit scores. However, if the minimum requirement for a credit score is lower, other factors might weigh in more heavily, such as your employment history, education or income.
You’ll want to do your research and check what the lending requirements are for a bank, credit union or lending company.
What are Personal Loan Requirements?
Wondering how to get approved for a personal loan? To compare offers, get prequalified first. Here’s what you’ll need to provide:
- Your name
- Current address
- Income information
- Social security number
- Date of birth
When you get prequalified and would like final approval on the loan, you’ll typically be asked to provide:
- Bank account information
- Driver’s license
- Pay stubs
- Bank statements
- Tax forms
Some lenders might ask for some of these documents during the prequalification process. To save you time and minimize hassle, you might want to start gathering financial documents when beginning your search.
A lot of lenders will list these requirements on their website. If you have any questions or would like greater specifics, you can always reach out and speak to a rep to gather more information.
What Kind of Credit Score do You Need to Get a Personal Loan?
While it depends largely on the lender, the minimum credit score you’ll need to get a personal loan usually falls anywhere between 600 to 700. As it goes with financing, the higher your score, the better your chances are of getting approved, and the better terms and rates you’ll get. Lenders will also take into consideration your homeowner status (if applicable) and debt history.
If you have fair or average credit, it’ll be tougher for you to get approved for a personal loan rather than if you have a considerably good or excellent score. While a credit score is a major part of determining your creditworthiness, it’s not the entire picture. A lender will also look at your income and, in some cases, your employment history. Additional documents may be needed if you’re self-employed or own your own business.
While you might be able to qualify for a personal loan with a not-so-stellar credit score, know that you probably won’t land the best terms or rates. If you do qualify for a personal loan with so-so credit, you can expect higher interest rates, lower approval amounts and less favorable terms.
How Can I Get a Small Personal Loan?
These days, you don’t have to step into a brick-and-mortar bank to apply for a personal loan – you can do it online. The application and approval process for personal loans are typically shorter than other types of financing.
To qualify for a small personal loan, you’ll need to fulfill the eligibility requirements. While each bank, credit union or lender will have slightly different criteria and loan amounts offered, you’ll typically need to meet the minimum credit score. When reviewing your application, lenders will look at your entire financial situation and income as an individual borrower, including your income and debt-to-income ratio.
Before applying for a personal loan, and to boost your odds of getting qualified, you’ll want to show that you rake in a steady income and pay your bills and debt on time. It’s a good idea to order a credit report and scour it for errors. Certain errors on your credit report could make you seem more of a risk to creditors than you actually are.
Is it a Good Idea to Get a Personal Loan?
Like many life decisions, it depends on your individual situation. As you’ll be taking on another form of debt, you’ll want to assess whether it’s the right choice for you. Will you be able to make payments on the loan? Will the money go toward good use?
How could quick finances potentially improve your life, or help you with a financial challenge? Could it help you grow your money in some way later down the line? How will your life be impacted or limited if you don’t have that money?
Of course, you’ll want to know the specifics, such as the APR and interest rate, what your monthly payments will look like and the time it’ll take to pay off (usually 36 or 60 months). And don’t forget to read the fine print. You’ll want to know if there are any prepayment penalties, what the late fees are, and if there’s any flexibility in making payments.
Shopping around for personal loans will not only help shave off some of the stress, but it’ll help you get the one that fits your needs and has the most favorable rates and terms.
Interested in a personal loan? We let you check your loan options for free online without harming your credit.
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Home Equity Loan Vs. Personal Loan: Which is Better for You?
What’s the best choice for you? We’ll show you the similarities between a home equity loan vs a personal loan and what to consider before applying for either one.