Besides traditional bank loans, you can also go for personal loans from your credit union or online lenders, which tend to cater to a wide range of borrowers and come with less stringent requirements. The catch: you’ll need to shop around for a personal loan that best fits your current financial situation. Personal loan terms, rates, and fees vary from one lender to another. Therefore, getting the best offers on a personal loan requires preparation and research. This is also why it’s best not to jump on the first loan offer you get.
Personal Loan Application Tips
The following are valuable tips that can help you land the best loan offers in the market, especially when you really need a loan and have bad credit.
1. Shop Around
If you’ve checked with your bank or credit union or you’ve received a preapproved loan offer in your email, it shows a good start to the process. However, it’s vital to know that the first loan offer you take a look at isn’t necessarily the best. Shopping around will let you compare loan terms, interest rates, and fees from a wide variety of lenders. Many online lenders might even allow you to check their rates by making a soft credit inquiry that won’t affect your credit score.
When shopping around for the best loan offer, letting the lender know what you’re looking for will help you decide to take out the type of personal loan they are offering. The more lenders you compare, the greater your chances of finding the best loan rate and terms. Do your best to compare at least three options.
2. Improve Your Credit Score
If you don’t need the loan amount right now, it’s best to boost your credit score. You can start by checking the status of your credit score. That will give you an idea of what you’ll be working on. After knowing which areas on your credit score status need some work, you can start finding solutions. For example, if you currently have some delinquent accounts, do your best to get them current. Late payments usually stay on your credit report for about seven years – letting them go into collections or paying them even later can prevent further damage to your credit status.
3. Get a Co-signer
Several funding institutions that offer personal loans tend to accept co-signers from applicants. A co-signer is someone that serves as a guarantee for your personal loan. This should be someone with a good credit history and a stable income that can improve your chances of getting a loan at a low-interest rate. Before you sign someone up to be your co-signer, it’s best to make sure they understand the obligations of being a co-signer. It’s important to remember that co-signers are obliged to fully pay the loan if the borrower fails to do so. If there’s missed or late payment, it will reflect on your co-signer’s credit report and eventually affect their chances of borrowing funds in the future.
Most personal loans are unsecured. This means that they don’t require you to put up collateral. However, with some lenders, you can choose to secure your personal loan with a car, cash in savings account, or home equity. Secured loans imply low risk because if you fail to repay the loan, the lender can seize your collateral to pay for the debt. Because of this, secured loans tend to offer lower interest rates compared to unsecured loans.
5. Autopay Discount
Several lenders give interest rate discounts to borrowers who sign up for automatic payments. Because if you sign up for autopay, you’ll more likely make monthly loan payments on time. Interest discounts for signing up for automatic payments are quite small. It’s just 0.25%. However, this can help you save a chunk of money in the long run. Keep in mind that you should always have funds in your checking account monthly to cover the automatic payments. If you don’t have enough money, the lender might charge you a penalty.
6. Avoid Fees
The annual percentage rate of a personal loan pertains to the interest rate and several loan fees. One of the fees you should try to avoid is the origination fee. This type of fee usually ranges from 1 to 8 % of your loan amount. Moreover, this fee is most likely deducted before you receive the loan funds.
The first loan offer you get isn’t necessarily the best. Personal loan terms, interest rates, and fees vary from lender to lender. To ensure that you are getting the personal loan you want, you should do your research and compare loan offers.