Five Things to Remember When Applying for a Personal Loan

We never know when we might find ourselves short on cash. Maybe we were injured and can’t go back to work for a while, leaving us without that expected paycheck. Or, maybe we’re behind on a few bill payments and are having a difficult time catching back up from that cycle. Regardless of the reason, the good news is that there are personal loans available from a variety of lenders that can provide the necessary short-term financial support we need.

While you can select from myriad traditional banking lenders as well as online options, there are a few things to keep in mind when undergoing the personal loan application process. Let’s take a look at five key considerations.

1. You should know and understand your FICO scores.

Lenders will look at your credit score when determining whether or not you’re eligible for a personal loan, and what amount you can be lended. For instance, many online lenders will require you to have a score of 640 or higher. Though they’ll run an independent credit check, it’s important to go into the application process knowing what your scores already are, so you’re not surprised by the numbers or can dispute any that come back glaringly different. You’re eligible for one free credit check annually from the top three reporting bureaus: Experian, Equifax and TransUnion. Pull your scores from a different bureau every four months to stay on top of any changes.

2. Not all lenders are created equal.

Do your homework when checking for lenders and don’t always take the first offer you receive. All lenders have their own set of underwriting guidelines and regulations, so the offers will vary. You can even submit one application to a universal online platform and many will check various e-lending sites for you to reduce the legwork you’re required to undertake. As a general rule of thumb, online lenders tend to have more flexible terms and higher approval levels than traditional, brick-and-mortar lending institutions. You can also get approved quicker that way, so don’t neglect to hop online and check out your options while you’re researching.

3. Remember there are fees.

While personal loans are great options when you’re in a pinch, they’re not viable long-term financing solutions, primarily because of the hefty fees they carry. To encourage you to pay back your loan on time, lenders will tack on myriad additional costs on top of expected principle and interest. To this end, research every offer you receive with a fine-toothed comb and check for any “hidden fees” that might be lurking. Especially if the interest rate you receive is shockingly low, it could be a signal that there are other costs you’ll be paying out of pocket.

4. Determine what you can afford.

Your lender might approve you for a certain amount, but do you really need that much? Moreover, can you afford to pay it back within the required timeframe? Create a budget and timeline for yourself to figure out how much you can afford and what you can realistically bite off. Once you know how much you’ll bring in each month and what you can spend, you’ll be in a better position to examine all presented offers to find one that fits your requirements.

5. Make sure you have all required documentation.

Even if you complete an online application, there are still various forms of identification and documentation you’ll need to have completed before you can apply and be approved for a personal loan. Doing so isn’t just a demonstration of your good organization skills. Some loan underwriters may even charge you a higher interest rate if they don’t have the complete set of paperwork detailing your complete financial history. So, it’s in your best interest to provide them with everything you have, including your account statements, tax forms, property deeds and anything else that applies to your situation.

Ultimately, personal loans can be an ideal route if you’re in need of quick support to help you cover a major expense, pay back a debt, or even start a new business. Yet, before you tackle the process of applying for one, it helps to be as prepared as possible. With these tips, you can take that first step with confidence and be on your way toward financial freedom quicker than you thought possible.