How To Get A Personal Loan [Step-By-Step Guide]
Whether you need to fund an emergency, a once in a lifetime adventure, or a large purchase, there are many reasons why taking out a personal loan is a great option.
To take advantage of personal loan benefits, you have to get through the approval process first. Similar to a home loan or vehicle loan, you must show your credit-worthiness to be granted a loan and your financial history is a major determining factor in doing so.
Keep reading to learn about what a personal loan is used for and the process of getting approved.
6 Step Process To Getting A Personal Loan
You will have to complete several steps before and after you apply to obtain a personal loan.
Here are six things you should expect during the process.
1. Determine Your Need
Before applying for a loan, you want to determine how much you need as well as how much you believe you can afford.
To figure out how much you need, think about your reason for getting the loan and the minimum amount you need to fulfill your wants or obligations. Then, look at your monthly financial commitments to see how much you can afford to spend on your loan each month. Keep in mind that you want to keep your debt to income ratio around 36%.
Finally, use a personal loan calculator to run the numbers and see if the amount you need and the amount you can afford add up.
2. Review Your Credit Score
After you determine your needs, you should review your credit report. Your lender will pull your credit report to review your financial history. This information will let them know your creditworthiness, how much you can afford to borrow, the interest rate you qualify for, and more.
Since your credit score weighs heavily on whether you are eligible for a loan and how much you can borrow, if possible, you want to make improvements to your score before applying. These improvements might include reducing your utilization rate or contacting the credit bureaus to have inaccuracies corrected.
3. Choose Your Lender
Once you’ve reviewed your credit score, it’s time to select a lender. This is a crucial decision because your lender can determine the ease of your application process, if you’re granted an approval, and how good or bad your terms are.
For example, credit unions are known for offering lower interest rates and providing better customer service through their loan application process, while banks make it more challenging to get approval with their strict requirements.
4. Select Your Loan Type
All lenders offer different types of loans. You want to select the best one for you. Here are your two primary options.
Typically, secured loans offer the lowest rates because they require collateral (ex. home, certificate of deposit, vehicle, etc.) in case you default on your loan. If you fail to make payments as agreed upon, your lender can seize the collateral.
An unsecured loan rests on your word that you’ll make payments. There is no collateral involved.
4. Get A Pre-Approval
Once you’ve selected your lender and the type of loan you want, it’s time to go through the pre-approval process.
To find the best financing option, you should do this with at least three lenders so you can compare the terms provided and select what’s best for you.
5. Complete Your Application
Once you review all of your terms, you can apply with the lender that made the best offer. Most applications can be completed online, while some allow you to do so in person.
The information you have to provide will vary based on your lender, but general application requirements include your contact information, income, employment details, and the reason for the loan.
As the loan goes through the underwriting process, you might have to submit additional documentation after completing your application. This, again, depends on the lender, but also your financial history. To help the underwriter complete your application as quickly as possible, you want to be available to respond rapidly with that’s needed. Otherwise, getting approval can take longer than you’d like.
6. Finish The Loan Process
Once the underwriting stage is complete, you have your loan approval. You will now need to finalize your loan and agree to the terms. Some lenders allow you to do this online while others have an in-person component that’s required.
Be sure to review all terms and details related to your loan before agreeing.
What Is A Personal Loan Used For?
There are many reasons why you might choose to take advantage of personal loan benefits.
Here are some of the more common reasons why you may get a personal loan versus using a credit card or other form of payment.
- You have to pay for an expensive medical procedure.
- You have to fund your pet’s veterinary care.
- Your vehicle requires maintenance.
- You’re starting a small business that has start-up costs.
- You’re consolidating your credit into one payment.
- You’re paying off other debts.
- You’re financing a wedding or vacation.
- Take Advantage Of Personal Loan Benefits
No matter your reason for getting a personal loan, know that following the steps above will help you have a stress-free and straightforward loan process.
When you’re ready to experience all the personal loan benefits and possibilities, we can help. At Ohio University Credit Union, we offer a variety of loan types to cover your financing needs.
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