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What to Consider When Applying for a Personal Loan

If you’re thinking of borrowing money to meet a financial need, you can consider taking out a personal loan. This type of loan is typically unsecured, which means there’s no need for a collateral, such as a house or a car. But of course, there are other things you should know about before finally deciding to apply for one.

Credit Score

With a strong credit score, you have a better chance of qualifying for a personal loan and getting a lower interest rate. If you’re not very confident about yours, take measures to improve it, and then submit an application. First off, you’ll have to start making on-time payments and spending under your credit limits. Also ask for a free credit report, review it and dispute any errors you might find.

Loan Prequalification

Through loan prequalification, you can see what what potential offers you might get. In most cases, an online lender will do a soft credit check when prequalifying an applicant, a process that will have no impact your credit score so go for it early on. Prequalification will require you to provide some basic personal information such as your Social Security number, monthly debt obligations, income, employer information, and the like.

Fine Print

As you will find with any other type of financing, there are terms and conditions attached to personal loans. Pay close attention to prepayment charges, APR additions (your APR should cover all fees from the get-go) and automatic withdrawals (get a low balance alert programmed into your checking account to avoid overdraft fees). Also make sure that the lender reports payments to credit bureaus, pays directly to creditors if you’re consolidating debt, and has generally flexible payment features.

Submitting a Personal Loan Application

Once you have compared a number of loan providers, you can pick one that is most suitable to your needs and preferences. Basic requirements you need to prepare are state-issued identification (driver’s license, passport, etc.), proof of address (utility bills), and proof of income (W-2 forms, bank statements, tax returns or pay stubs). The lender will run a hard credit check too, and you should know that this will have an impact on your credit scores. Provided all needed documentation is in place and you actually meet the bank’s or lender’s requirements, the funds will likely be forwarded to your account in a week’s time.

While a personal loan can certainly help you in a financial need, you need to go over your options carefully before settling on one. Find the best rates, borrow only as much as you need, and be prompt when making your payments. And lastly, be sure to make comparisons – there’s no other way to see which option is best for you.

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