Have you ever seen those magic shows in which the magician pulls flowers out of his sleeve or makes a coin appear behind someone’s ear? In the world of personal finance, it can feel like magic to suddenly have the funds to pay off a debt, make a home improvement, or purchase something you’ve been wanting for a while. This is where personal loans can be helpful. It may seem daunting at first, but getting approved for a loan is not as complicated as pulling a rabbit out of a hat, there are some simple tips to get a loan that can help you in the way.
In this article, we’ll cover:
- What is a personal loan?
- Different types of personal loans
- Applying for a personal loan
- Tips to get a loan easily
Let’s dive in and discover how you can make your loan application a success!
What is a personal loan?
A personal loan is like borrowing money from a friend, except you ask a bank or financial institution instead. It allows you to use the money for anything you need, whether it’s to pay off debts, assist a family member, make home improvements, or spoil yourself. It’s like a financial safety net that you can utilize when you have a specific requirement.
Although it may seem as simple as asking a money from a friend, there are various types of personal loans available, each with its unique features and conditions. Some have a fixed interest rate, while others can fluctuate. Therefore, it’s vital to fully comprehend the terms and conditions before requesting a loan and committing to repay it.
Different types of personal loans
As we mentioned, one of the first tips to get you a loan is to consider the conditions of each type of loan as the first step of the process. This will help you choose the loan that best suits your financial situation. These are some of the most common:
- Debt consolidation loans: These are the most common type of personal loan. In 2023, Forbes conducted a survey in the United States where 59% of respondents mentioned they managed to pay their outstanding bills thanks to a debt consolidation loan. These types of loans help reduce monthly payments by providing a single, potentially lower interest rate.
- Credit card refinancing: Personal loan interest rates are typically lower than credit card rates. This allows applicants to complete their card payments over a longer period.
- Medical loans: Expenses on medicine, or health in general, are sometimes unpredictable. These loans can help reduce the price you have to pay in case of an unexpected accident or medical treatment.
- Emergency loans: These are also used for big expenses that are not anticipated. Your car may suffer some major damage or chances are that a pipe in your house will eventually break. An emergency loan will help you pay for arrangements such as these.
- Home improvement loans: These are used to pay for a large renovation upfront without taking out a loan against the value of your home. This type of loan would be ideal if you’re looking for a significant home improvement, like a new room for a baby on the way.
See also: Why you need to have an emergency fund
Depending on the financial situation you are going through, you can opt for the type of personal loan that best suits you. There is no one better than the other, that’s up to your individual financial situation.
Remember that it is not 100% guaranteed that you are eligible for said credit simply by asking for it. Nevertheless, since we are all friends here, here are some tips and tricks to get you a loan.
Applying for a personal loan
When you decide to apply for a personal loan, the process may seem daunting at first. However, it can be simplified into a few key steps.
- Determine how much you need: Before applying for a personal loan, take some time to determine the amount of money that you need. It’s important to have a clear idea of how much you need to avoid borrowing more than necessary (more on this later).
- Review your finances: Determine what you can afford before applying for the loan. Take a thorough look at your budget to understand how much money you have coming in and going out each month. Can your budget handle an additional monthly payment?
- Pre-qualify: Lenders usually provide pre-qualification to show you the loan terms that you are likely to be eligible for. To pre-qualify, you generally only need to provide basic information such as your personal identification details, employment or income information, and the desired loan amount.
- Complete the application: The personal and financial details that you need to fill in the loan application include your name, address, and employment information. Along with these, you may also be required to submit additional documents like proof of residence, a state-issued ID, income records, and tax returns.
- Review and accept the loan terms: If you are approved, you will need to carefully review and sign your loan documents. These documents will detail the loan amount, interest rate, repayment term, and monthly payment amount. Once you have accepted the terms, you can expect the funds to be deposited into your bank account within a few days.
Tips to get a loan easily
Check your credit score
Your credit score is a financial record that shows how well you manage your debts and payments. The higher the score, the better and more likely you are to be granted the loan you applied for.
See also: 5 simple steps to improve your credit score
To check your credit score, you can request it from your bank or use free online services. Reviewing your credit score can help you understand your financial health and identify areas that need improvement. A good score not only helps you get loan approval but also ensures more favorable interest rates for you.
Improve your financial situation
Among the tricks to get a loan, improving your financial situation can be the key to obtaining that personal loan you need. This might mean paying off outstanding debts, keeping a tighter budget, and saving a little more.
Remember that developing responsible financial habits is like strengthening a muscle over time. If the lender sees that your financial situation is good and you are a good steward of your resources, they will have fewer reasons to deny you credit.
Don’t request too much
Borrowing money can make you feel like splurging, and you might end up asking for more than you actually need. Please, do not do that; you don’t want to end up with too much borrowed money. Resist this urge and take time to evaluate how much money is really required.
This approach ensures that the amount borrowed is neither insufficient nor excessive, but just right.
It’s important to find the right amount when applying for a personal loan. This will not only prevent the stress of paying more than what you need, but it may also increase your chances of getting approved. As we previously discussed, the loan amount you’re eligible for depends on several factors, including your credit score and financial stability.
By requesting a lower loan amount, you’re more likely to meet the lender’s requirements if your current financial situation is good enough.
Consider adding a co-signer
Adding a co-signer to your personal loan application is like having a financial ally supporting your decision to borrow money. This co-signer, who generally has a solid credit history, shares responsibility for the loan with you.
The key reason to have a co-signer is that adding another person’s credit history and financial situation to a loan application can help you qualify for a lower interest rate or higher loan amount.
By having someone support your application, lenders can feel more confident that the loan will be repaid. This can be especially helpful if your own credit history presents challenges.
Choose the right lender
When you go to a party or gala event, you need the perfect suit that fits you. Choosing the right lender is practically the same but without the aesthetic part.
It is vital to compare different lenders, including banks, credit unions, and online lenders, to find the best loan amount, interest rates, terms, and fees. You should check the loan requirements of each lender to make sure you meet their criteria.
Keep in mind that some lenders may have certain requirements, such as a minimum credit score or income requirement, or they may only offer loans in specific states.
To find the top personal loan lenders, you should review ratings and feedback from other borrowers. Although interest rates are important, it is also crucial to select a lender that provides high-quality customer service and a good overall experience.
You should look for lenders that offer helpful information and prioritize meeting customers’ borrowing needs. Once you have narrowed down your options, you should rank your top choices to finalize your decision.
Also, while in this process, pay close attention to the terms and conditions of the loan. Read the rates and payment periods carefully to avoid surprises like hidden charges. As they say in the movies, make sure you read the fine print.
Conclusion
We have finally reached our destination! Now that you are aware of what a personal loan is and the different types that are available, put these tips and tricks to get a loan into practice to ensure a favorable financial experience.
Remember that each type of loan and each potential lender has its own set of rules. Making a wise decision can make a difference in interest rates, terms, and conditions.
Checking your credit score, improving your financial situation, adding a co-signer, and choosing the right lender can increase your chances of getting loan approval. It is also vital to borrow responsibly and fully understand the loan terms to keep your financial health in good shape.
