The personal loan industry hit an all-time high last year with a total of 19.5 million loans outstanding.
Because of the large demand for personal loans, new lenders are emerging every day. This can make it hard for those seeking a personal loan to know which one is right for them. But, it also means that with a little research, you can have several great options to receive a favorable personal loan quickly.
Most people will consider applying for a loan at some point in their life! Prepare yourself by learning these loan application tips.
1. Decide How Much Money You Need
The best loan tip is to figure out how much of a loan you need before you apply for a certain amount.
Our take:Lender focused on poor credit, based out of Chicago currently offering loans in 29 statesAPPLY NOWLender: OppLoansCredit ScoreLoan Size/AmountLoan TermAPROrigination Fee350 – 600$500 – $5,0009 – 2459.00% – 199.00%0.00% – 3.00%
Odds are, you’re applying for a loan to fund something specific, such as a car repair or schooling costs. The first step is to sit down and price out exactly what you need. Factor in any amount of cash you can contribute to the expense and any extra fees that may pop up.
A loan comes with interest, so you don’t want to borrow more money than you need just because you can. At the same time, you want to borrow enough to cover the whole expense, or else you may find yourself applying for another loan in a few days.
Give yourself a little bit of a buffer above the estimated amount you think you need. For example, if you calculate that you need $2,500, apply for a loan of $2,750.
2. Know the Loan Types
Personal loans actually include a variety of different loan types. If you go to a lender looking for a personal loan, you may be surprised by how many different types are available. Knowing what type of loan you need, will help the loan application process go smoother.
First, all personal loans are either unsecured or secured loans. An unsecured loan is a loan that is not backed up with collateral, such as personal property. But with a secured loan, you offer up collateral, like a vehicle, that can be seized for payment if you fail to repay the loan.
Then, your personal loan could be a fixed-rate loan or a variable-rate loan. A fixed-rate loan means that both your interest rate and payment amount stay the same for the whole life of the loan. With a variable-rate loan, your interest rate can change depending on the month, meaning your payment may be more or less than previous months.
Our take:Online marketplace to find you a personal loan offer that matches your needsAPPLY NOWCredit ScoreLoan Size/AmountLoan TermAPROrigination FeeAll can apply$100 – $15,0001 – 604.99% – 1,386%Varies by lender
3. Check Your Credit Score
A credit score is one of the main things that lenders will look at when deciding whether or not to approve a loan. The better the credit score you have, the more likely you are to be approved. In addition, those with a higher credit score often receive better interest rates than borrowers with low credit scores.
So what exactly determines your credit score?
Payment history accounts for 35% of your credit score while total amounts owed are 30%. The length of your credit history accounts for 15% of your score and your credit mix is 10%. The last factor of your credit score is new credit, which is also 10%.
A good credit score is considered anything above 670. If you’re denied for a loan because of your credit score, don’t fret. There are bad credit loans available for people in your situation, they’ll just come with less desirable terms.
4. Gather Your Documents
Before you sit down to apply for personal loans, you need to gather the right documents. This will help streamline the process and avoid getting a loan rejection just because you don’t provide the right information.
For most loans, you’ll need documents to prove the following:
- Proof of identity
- Proof of residence
- Proof of employment and income
- An active bank account
And if you’re applying for a secured loan, you’ll need information on the personal property you’re using as collateral.
Once you’ve gathered all these items, make a digital copy and save them to your computer. Many of the loans you’ll apply for will be online and may require you to upload copies. Having these things ready will save you time so you can get the money you need quickly.
5. Review the Loan Terms
Once you’re ready to find the best loan for you, it’s time to concentrate on the loan terms. Besides the loan amount, you’ll want to pay attention to both the interest rate and installment term.
Your interest rate is the fee you’ll pay to borrow the money.
The higher the interest rate, the more you are paying to borrow the money. Lenders will provide an interest rate based on your likeliness to repay the loan. So if you have a high credit score and a stable income, you’ll likely get a lower interest rate than someone with a low credit score and a brand new job.
The installment term is the number of months you’ll make a payment on the loan. So if your installment term is two years, expect to make 24 monthly payments on your loan.
6. Find the Right Lender
Once you know the terms to look out for, that will help you find the best offer from the right lender. But just because a certain lender is offering favorable terms, that doesn’t automatically make them the best choice.
Start by doing some online research on the lender.
Do they have a website that provides potential lenders with clear information? Is there a phone number available in case you run into questions down the road? If there’s very minimal information online, this is a red flag.
Then, see how upfront they are about the loan specifics. Do they give you an interest rate before you agree to the loan? Are the terms specifically written out for both parties to see?
Start Your Loan Application Now!
With these tips, you’re ready to start your loan application now.
If you’re in need of a personal loan, consider using Bonsai Finance. They offer a variety of loan types, including personal loans, installment loans, and cash advance loans. With just a few steps, you can apply for a personal loan today and receive your money as soon as tomorrow!
Want to do a little more research before securing your personal loan? Head over to our personal finance learning center to find answers to all your questions.