In life, expenses can be numerous. Between rental and mortgage payments, credit card bills, car loans, and everyday costs like groceries and basic supplies, they all add up. Depending on your financial status, you may find it challenging to pay them off. That’s where a personal loan is helpful.
These loans can make sense for many reasons. It provides a way to get the funds you need to pay off debts, cover expenses or make an expensive purchase. In addition, they can be paid back at your own pace, giving you flexibility.
If you’re thinking about taking out one, here are some simple steps to get you started.
Step 1. Examine the various options
Do you think this loan is right for you? You’ll need to do some research before you choose.
The first step for anyone looking to get one is considering and comparing the options available to them. However, before you make your choice, you need to think about the many factors that affect who qualifies for it, how much you are eligible for and where you will get your financing.
“Anyone interested in obtaining a personal loan begin by evaluating and comparing the various options available,” said Neil Thomas, certified financial planner at Financial Life Advisors. “Before making a final decision, it’s important to carefully consider the various factors that can impact your eligibility, the amount you may be able to borrow, and the source of your financing.”
Ensure that you consider these possibilities:
- Banks, Online Lenders, or Credit Unions. A variety of lenders offer this service, and the pluses and minuses of each vary. You’ll need to evaluate the options that work for your situation before you start looking for loans.
- Security deposit. Will you put up a security deposit? In other words, you’ll have to put up your car, home, or money in cash to qualify, and the lender can grab that collateral if you fail to make the repayment.
- Co-signer or not. Do you want a co-signer or not to be present to get your financing approved? This option can impact your interest rate, as well as the terms and conditions for obtaining credit[1].
Consider these options before pursuing your application.
Step 2. Select the type you need
After narrowing down the number of options based on factors such as collateral, co-signer and potential lenders, selecting a loan is the next step.
“Customers should carefully research the various types of personal loans that are available, as each one may have specific conditions and requirements,” said Thomas. “It’s important to choose the option that best aligns with your financial situation.”
The following list presents the main kinds[2]:
- Those with a variable rate have an interest rate that might be changing.
- A debt consolidation, which combines multiple debts into a single loan.
- Those with co-signature, whereby another person must sign alongside the borrower.
- The unsecured ones, which do not involve collateral.
- Secured loans are based on a guarantee (an asset such as a car).
- Those with a fixed rate, which features fixed interest rates and monthly payouts for the loan’s duration.
Before considering these categories of loans, think about the desired uses of the money. Sometimes lenders may restrict how you can use the money, while others may not. Being aware of this information ahead of time will help you avoid any potential difficulties[3].
Step 3. Compare interest rates
A key factor in any loan is the interest rate. It dictates the amount of money you will have to repay over the loan term. It can mean paying thousands of dollars more.
Therefore, it is best to aim for the lowest one possible. Lenders will determine the rate based on the economy, current rates, your creditworthiness and your financial history.
However, this does not mean accepting a lender’s first offer. Instead, you must look at the offers and negotiate them. Learn about different loans offered by multiple lenders and compare their interest rates. Find out what some other lenders will be willing to offer you, or what interest rates might be right for you.
Finally, don’t be shy about asking for an interest rate reduction. You may qualify for this after a long period of service with a bank or credit union. Online lenders sometimes offer financing solutions by getting you pre-qualified for selected loans.
By taking the time to compare prices, the interest could save you thousands of dollars. A low-interest rate is still the most effective way to save money when getting a personal loan.
“I always encourage clients to compare interest rates and terms on the contract when obtaining a personal loan,” said Melinda Corivo, certified financial planner at JK Investment. “Taking the time to do so can potentially save you thousands of dollars. Keep in mind that a low-interest rate is often the most effective way to save money on a personal loan.”
Step 4. Find a lender and submit an application
After comparing interest rates and identifying the one that best suits your needs, you can finally close your loan. The final step is to select a lender, after which you can submit a formal application for personal credit.
“While it may be tempting to simply choose the lender offering the lowest rate, it’s important to also consider the overall terms of the loan,” said Corivo. “Keep in mind that a low interest rate doesn’t always equate to the best choice. It’s also crucial to thoroughly review the borrower’s background.”
Then you can fill out your application. Each lender provides different underwriting options. For some, you will need to do it in person at the bank or local credit union. However, many now allow you to submit your entire application online.
Once you complete the application, you must wait until you receive the funds. Depending on the funder, this can take 24 hours to a couple of weeks. In general, it takes no more than several business days to receive the funds.
Once your account has been credited, you will have the money to cover all your needs. While shopping around and identifying the right provider may take some time, a personal loan can be a fast and straightforward way to obtain the cash necessary to accomplish your project.
