Simple tips for applying for a personal loan.
There are so many reasons to decide to get a personal loan — debt consolidation, appliance purchases or repairs, expenses for a wedding, auto repairs, medical expenses, or maybe a dream vacation.
Personal loans can be a fast and simple solution for your needs and offer more appealing interest rates and terms than credit cards or title and payday loans. Applying for a loan can be an easy process, especially if you know what to expect.
So, what do you need to qualify for a personal loan?
Before a lender, such as a loan company, credit union, or financial services institution, can consider whether you’re a good candidate to borrow money (and pay them back), they will need to evaluate your financial situation.
The first steps of your loan application will require documentation that proves your identity, employment, and address. To simplify the application process, be sure to gather up these documents before you apply.
In the digital age, you may find that you can prequalify or book your loan via an online process on the lender’s website. Having the documents below on-hand before you start will ensure that you have all of the information you need.
There are a number of ways to provide documentation. Different financial institutions may have additional requirements, but the following are standard.
Proof of identity
You may need to provide two of the following documents
- A current driver’s license
- A Social Security card
- A state I.D. card
- Your birth certificate
- Your passport
- Proof of citizenship
- A military I.D. card
Proof of employment or income
If you’re traditionally employed:
- Your paystubs
- Your tax returns
- Your bank statements
- Your W-2s and 1099s
- Your employer’s contact information and manager’s name (The lender may call to confirm your employment.)
If you’re self-employed:
- Your bank statements
- Your 1099s
- Your tax returns
Proof of address
You may need to provide two documents with your full name and address
- Your I.D. card with current address
- A current utility bill
- A mortgage statement
- A leasing agreement
- Your voter registration card
What else will your lender need to know about you?
Be prepared to answer some basic questions when starting the loan process. Your answers are not only important for the loan company, but they will also give you a clearer picture of the commitment of which you’re entering.
- What is the loan amount you need?
- In general, how will you be using it?
- How much can you afford to pay each month?
- How many months will you need to pay off the loan?
Bear in mind, you are not only paying for the loan amount, but also the lender fee and an annual percentage rate of interest (APR) on that amount. (Think of the interest rate as paying rent on the money you are borrowing.) Ask if there are any additional fees, such as origination fees.
The first step to applying for a personal loan is to prequalify. This is quick and simple and does not affect your credit report or score.
It’s always a good idea to review your credit report and your credit score before applying for a loan. You’ll avoid being surprised by anything your prospective lender sees when they examine your credit report. Checking your credit report will not affect your credit score, so you can feel free to check as often as you’d like. Getting a personal loan and paying it back on time can help improve your credit rating.
Your lender will examine your credit history and your debt-to-income ratio (DTI), which compares your monthly debt payments (such as auto loans and student loans) to your gross monthly income.
Secured personal loans, which require collateral (something of value that the lender can sell to pay off your loan if you fail to make your payments), can often be obtained at a lower interest rate than unsecured loans, which do not require collateral.
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References: Accessed March 26, 2021
Advertiser Disclosure What documentation is required for personal loans?
Personal Loans: What to Know Before You Apply
How to Apply for a Personal Loan
How to Apply for a Personal Loan
