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A global pandemic has made life very difficult for many people over the past year. People in different conditions have found that they have no recourse but to seek a personal loan to make ends meet or for a bit of breathing room.
With the number of things to consider, getting approved for a personal loan can be daunting.
Here’s how to get approved for a personal loan:
Getting a loan can be difficult, but the good news is that it doesn't have to be. This article will go into significant detail about the steps you'll need to take to give yourself the best chance to get approved for that loan.
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1. Calculate How Much You Need to Borrow
Before you even begin to apply, the first thing you need to do is some number crunching. Math is no one's favorite subject, but if you want to have a completely clear picture of your chance of getting that loan, then it's time to go over some numbers.
First, you'll need to calculate exactly how much you need to borrow. While you might have a general idea of how much you need, it's best to have an exact number or range prepared for when you apply.
The most important thing here is to write down what expenses you need the loan for. Depending on the reason behind the loan, this can vary over a wide range, and only you know your needs.
Do some proper research on the reason for the loan and try to calculate all the expenses involved. For example, if you need the loan for a holiday, calculate ticket costs, accommodation, feeding, and everything else that comes to mind.
Once you have a figure prepared for yourself, the next thing you'll want to do is figure out how much you're willing to loan. Now, it might seem like a good idea to ask for more than the loan amount to account for any issues or price differences, but can you pay it back?
How much you need isn’t the same as how much you need to borrow. There might be areas you can cut back to reduce the loan amount as much as possible.
This one fact is something a lot of people taking loans don't seem to consider. Repayment is as hard and sometimes even more so than getting the initial loan.
Interest rates, emergencies, and many more things can factor into your loan repayment so before you put down a figure, try to cut it down as much as possible to ease your repayment.
There’s nothing worse than having that debt hanging over your head and being unable to repay it. Not only will it be a constant thought in your mind, but it’ll also ruin your credit.
2. Audit Your Credit
Your creditworthiness is one of the most important factors that’ll affect your getting the loan. Most banks and lending institutions will do a credit check first to check if you can repay the loan you're asking for.
To give yourself the best chance of getting the loan, you’ll want to have an 'exceptional' credit score in the range of 800-850. Realistically most people don’t have this, and if you don't, that's fine.
Usually, the lower your credit score, the higher your interest, and vice versa. These scores are usually based on the FICO standard which is used by most professional lenders.
The interest rates for the different credit ranges will change depending on where you choose to get your loan, but the rule of thumb of better credit equals better interest rates usually applies across the board.
Soft and Hard Inquiries
If you’ve decided to check your credit, you’ll want to use something known as a 'soft inquiry.' You can get this done with a range of financial services online, and it’s usually quick and affordable (or free).
This type of inquiry has no impact on your credit rating, but it won’t give you as much information as the alternative.
On the other hand, a hard inquiry gives a comprehensive report on your creditworthiness with a detailed background of your credit history. Unlike the soft inquiry, this will have an impact on your credit score.
Hard inquiries won’t be made until you choose to go to the lender and file for the loan you want. It’s best to be prudent with how often you take these loans because of this.
This sort of inquiry will stay on your credit history for a couple of years, and multiple inquiries will bring your rating down significantly.
3. Choose a Lender and Apply for the Loan
Once you've gone through all the prerequisite checks, you’ll finally be at the last hurdle to choose a lender(or not) and apply for the loan. At this point, all the previous steps you've taken come into play.
Your priority is to choose where you want to lend from. Your best options are:
- Credit unions
Banks are where most people go when they need a personal loan. Usually, banks have a higher interest rate than credit unions but are more accessible.
On the other hand, credit unions have a less rigorous approval process and will usually also give you lower interest rates. The catch is that you usually have to be a member.
Regardless of your first choice, this is an area where you’ll want to do as much due diligence as possible. Different organizations will give you different interest rates depending on your credit score, financial history, and income. It’s best to do the rounds first and pick from the best option.
If the best option for you isn’t favorable because of a low loan amount or high-interest rates, it might be best to take a break and boost your credit score for a while instead of seeking the loan.
Taking on high-interest loan repayments isn’t a good choice, especially if you're already in dire straits. Boosting your credit score can take a while, but it’s a far better option than going into debt.
Once you've done due diligence in your search for the loan, you can proceed with the application. Application processes vary depending on where you go, but you'll usually need to fill in your name, income, SSN, and relevant pay stubs or other forms of proof.
Ready to Apply for a Personal Loan?
Applying for a loan doesn’t have to be a taxing process. Due diligence and proper preparation will make it far easier. Most of the work to get approved for a personal loan is done before you even step into the office.
When applying for the loan, make sure you don’t take on more than you can handle and look for the best interest rates to make repayment as stress-free as possible.