Personal loans are gaining popularity, with almost 22 million Americans having had a personal loan as of 2022’s last quarter. These loans are easy to manage and are flexible and versatile. The fact that you can apply online has made these loans quite convenient. Their popularity can also be attributed to the simple and quick application, approval, and disbursement.
Personal loans can be spent on anything, including debt consolidation, moving expenses, home renovations, huge expenses, vehicle financing, emergency, wedding, and vacation expenses. However, knowing what to consider when looking for a suitable personal loan can be helpful. This article outlines six personal loan tips you should always follow.
1. Research before applying for a personal loan
Many personal loan options are available in the market today, including e-transfer payday loans, with varying terms and interest rates. Also, not every lender is suitable for your needs. Researching before applying for a personal loan can help you find an option with the most favorable fees, payment options, interest rates, and terms. It can also help you avoid loan scams and educate yourself for future reference.
To find the best personal loan lender, decide on the loan features you want and use a loan comparison website to see the alternatives available. Read online reviews to find out past borrowers’ experiences and look for the lender on Better Business Bureau to make informed choices.
2. Take a personal loan only when it’s necessary
Personal loans are unsecured and, as such, tend to be costlier than secured ones. Only apply for a personal loan if it’s necessary. This loan option can come in handy when you want to consolidate a high-interest credit card debt or clear other high-interest debts. Applying for a personal loan and repaying it on time can help boost your credit score, mainly if you’ve missed debt payments. This makes it an excellent alternative if you’re looking to build or improve your credit records.
A personal loan may be necessary if you purchase new appliances, a new furnace, or other major purchases. You can also use it to finance a significant life event, including weddings, anniversary parties, vacations, emergency car repairs, and more.
3. Don’t apply for multiple personal loans at once
When in a financial crunch, you might be tempted to apply for different personal loans with various lenders, hoping to get approved sooner. Applying for multiple personal loans at once or within a short period can be harmful. Lenders may conduct hard inquiries to determine whether to deny or approve your loan application.
If you apply for many loans at once, the temporary dip caused by hard inquiries may affect your credit score. Don’t apply for many loans at once because this can negatively impact your credit score while showing prospective lenders that other lenders have rejected you over the recent past or showing them that you could be struggling financially.
4. Improve your credit score
Ensuring a healthy credit score before applying for a personal loan can be rewarding. If you apply for a personal loan with low credit, lenders will consider you a high risk, making it impossible to qualify for low-interest loans. It also shows lenders that you may be unable to repay the loan. Improving your credit history before applying for a personal loan can make you eligible for a low-interest personal loan and favorable loan terms. With a high credit score, you won’t need a co-applicant to apply for a personal loan.
Ensuring that you don’t miss payments, bringing past-due accounts current, and limiting how regularly you apply for new credit can help boost your credit score. Paying your bills on time, consolidating your debts, aiming for credit utilization of 30% or less, disputing credit report mistakes, and adding to your credit mix can also improve your credit report.
5. Determine your eligibility
Before applying for a personal loan, meet the eligibility criteria or requirements. This can help enhance your qualification chances while streamlining the application process. When applying for a personal loan, your lender may need proof of identity, including a passport, driver’s license, birth certificate, certificate of citizenship, military ID, and any other state-issued ID.
They may also require income and employer verification, such as returns, paystubs, bank statements, 1099s and W-2s, employer contact details, and proof of address. You may need a good credit score, origination fees (not mandatory), and a high DTI ratio to qualify for a personal loan.
6. Beware of additional charges
Fees and additional charges are vital considerations when applying for a personal loan. While personal loan charges are common, some lenders may not charge fees. Some lenders might charge more than others, so be careful with these charges. Origination, late payment, application, and annual fees and prepayment penalties are common personal loan fees to consider. When comparing personal loan fees, focus more on annual percentage rates, not interest rates, because it looks at each year’s total borrowing cost.
Personal loans are pretty helpful, especially when facing financial difficulties. Implementing these personal loan tips can boost your approval chances.