Personal loans are a quick and easy way to get the money you need for your personal needs, such as repayment of credit card debt or other expenses. They’re one of the most popular loan types available today.
They are unsecured loans, so you don’t need to give the lender any assets as collateral against the loan. Instead, they work based on your ability to pay back the money.
You can borrow up to $35,000 in most cases, and the loan term ranges from 6 to 36 months. The longer you borrow, the more interest you’ll pay. Depending on your credit history and income, you may not be able to borrow as much you’d like – but on average, people can expect to borrow around $10,000.
Your Credit Score Dictates the Cost to Borrow
Your credit file determines your annual income and your ability to repay. If you have a poor credit rating, you’ll need to borrow for the maximum repayment term, which is to say for 12 months. If you have a good credit rating, you may borrow for the minimum repayment period of either 3 or 6 months.
The higher your score is, the lower the interest rate will be on your loan. If you’ve got a low credit score, it may mean you have to pay a higher interest rate. Once you’re approved for your loan, you can either take out a partial loan or the full amount.
Typically, a lender will perform a hard pull on your credit report. The amount you’ll need to borrow also depends on your credit limit offered by your bank or credit card company.
How Do I Qualify For a Personal Loan?
It would help if you typically were at least 18 years old, a US resident, and a regular income source. If you’ve got debt with your bank or credit card company, they’ll likely want you to pay off or make payments on that debt first.
Remember, you may have to pay closing costs on your loan. And once you’ve been approved, be sure to get the final details — including interest rate, payment schedule, and fees. These loans are typically unsecured, which means there’s no collateral involved.
Is It a Good Idea to Get a Personal Loan?
While it’s always a good idea to use the loan responsibly, you might become overwhelmed when considering your valuable options for using the money. You might be better off borrowing what you can afford to pay back each month.
To help you evaluate your situation, consider the questions below. Your goal is to break even, not to make a profit. Bottom line: When it comes to private loans versus credit cards, consider your financial situation and the loan’s length before choosing.
How Much Money Can You Get From a Personal Loan?
Loan amounts can range from a few hundred dollars to tens of thousands of dollars, depending on your financial situation. Technically, you can borrow as much or as little as you like within the maximum specified amount. The maximum amount is usually based on your income and the type of loan. Be aware that larger loan amounts may result in higher interest rates and total money to pay back.
Be aware that the greater amount you’re trying to borrow means the more time it will take to pay off. And not only will it take more money to repay the loan, but the total interest accrued may also be higher when compared to smaller amounts. Inaccuracy can result in loan forgiveness, which means you would have paid an unnecessary amount. That said, sometimes it’s just easier to deal with one loan versus several loans.
How to Apply for a Personal Loan?
When applying for a personal loan, consider deciding whether you want to make monthly payments or pay the loan off in a lump sum. Smaller payments can mean lower payments, but they also mean you’ll be paying for a longer period of time! Some lenders offer payment calculators so that you can see the difference between making monthly payments versus one payment at the end of your life.
For example, say you want to borrow $5,000. With a monthly payment plan, each month, you’d pay $200 and have a total paying back of $7,200. If you decide to pay the loan off in one lump sum when your loan ends, this means that you would potentially pay $500 instead plus interest and fees. Which is better? That depends on your specific money situation, and a professional can help crunch those numbers before you decide.
Request your credit history from all three credit reporting agencies. This is usually a quick process, generally taking 24-48 hours, and can be done online. Ask for a credit report and free credit score. You can find out if you have any judgments or liens on your record. If so, you’ll need to work with the court or the creditor to get those cleared up before your loan falls through. Credit cards are fine until you pay off the balance completely. As a general rule of thumb, keep below 2/3 of your total credit line available at any time.
This means that if you have $800 on your credit card right now, don’t run it over $400 unless you know the debt will be paid off shortly. The bank may look at this to determine how risky it is to lend you money. You must keep your credit cards under control and pay off balances completely so they won’t affect your ability to get a loan. A person shouldn’t carry more than $4500 in total revolving debt (greater than 30 days late). If you’re close to those limits, it can hurt more than just a potential loan. It will also affect whether your current loans, including student and car loans, remain available with favorable terms in the future. If cases arise where you were less than 90 days late with all your payments, current on payment but accounts were referred to collection agencies, have been filed bankruptcy have had judgments against you do not repay anything
Documents to Apply for Personal Loan
- identifications cards (passport, driving license)
- Previous salary slip
- ID card or Household register
- A co-guarantor (must be a relative of yours)
- A bank statement
This amounts to the same thing as a personal loan repayment plan, though fees typically are imposed. Once the balance was zero, I switched to paying rent and utilities with the credit card then using my own money for discretionary items – groceries, etc. Your credit score will improve by doing this because it makes paying on-time more important and reduces your utility bills. Use the credit card for online payments whenever possible. This is especially important if you have a Low Credit Score, as it will make payments on time more difficult otherwise, without reducing the balance owed much or swaying your rate of interest. Sometimes the payment processor has an app that you can download to make paying easier, and it records and shows that you were making payments at one time.