A personal loan can provide you with that extra cash you may need for home renovation or for a vacation or for a marriage function or for any of your other small needs. Getting an unsecured personal loan can be a little difficult. It can be a little bit scary if you do not know how to go about it.
There are 2 types of personal loans, unsecured and secured. To get approved a secured personal loan, you will have to put something as collateral. The bank will, of course, take your collateral in the case you fail to pay the money back. Secured loans have lower interest rates. No collateral is required for unsecured loans, however, they are difficult to get, and they have a higher interest rate.
The documents and the information you need to provide the lender to get a personal loan depend on the method you opt for to get the personal loan. Almost all the loan will require basic information such as your address, birth date, social security number, phone number, and so on. Lenders may also ask for your employment information, such as work history information and pay slips to verify your income. In some case, you will also have to furnish a copy of your tax information, as well as bank statements, address proof, and your renting / mortgage statements.
Ensuring a smooth loan application process
Nowadays, the lenders are stricter in approving personal loans. If you hope to get your loan approved, you will have to be ready to present them with a complete, perfect package for their review. Following are some tips on how you can ensure your bank loan application gets processed without any problems.
- Do you really need the loan? – Take the loan only if you need it, not because you want it. Convincing the lender that you really need the loan will play an important role in getting your personal loan approved.
- Discuss with your family. – it is really important that you discuss your plan with your family before taking the loan, no matter how small the amount is. Letting the lender know that you have your family’s support will allow him / her to view your application more favorably.
- Check out loan packages online. – There are a number of credible websites that you can visit to check out which loan package best suits you. “Personal Loans” is one such website.
- Read the fine print. – It is a tedious task, but one that you will have to do to completely understand what you are getting into.
- Contact the lender directly. – Nowadays, you have the option to apply for a loan online, and get it approved without actually going to the bank. However, it is always better to get in touch with the lender personally and discuss all the terms and conditions with him / her. This will also help you avoid any online scams.
- Be aware of your credit history and your current credit score. – Before you submit the loan application, request a copy of your credit history. If you find any errors, correct it. Your credit history and your credit score play a major role in getting your loan approved.
- Consider your financial limitations. – Tour loan amount should be based on your overall financial ability to make repayments you can afford.
- Apply for a realistic loan amount. – The lender will definitely calculate a realistic amount that you will be able to pay back, based on your credit score and your income reports. Keep that in mind while deciding on the loan amount.
- Check with the lender about the required documents. – The lender will tell you the requirements for a personal loan. You will have to submit all the required documents along with the loan application form. Make sure you have them all.
- Create a checklist. – Based on the information you got from the lender, create a checklist. Use this checklist while submitting the application form in the bank to make sure that you do not miss out anything.
- Have practical expectations. – Some of the loans will be pre – approved up front, the others, you will have to check with the loan officer about the following it up.
- Be prepared with an alternative plan if the loan is not approved. – To continually apply for a loan that you hope will get passed can be dangerous to your credit score.
- Always be calm while meeting with the lenders. – This will ensure them that you will not become a nuisance to the bank, in the future.
Credit Scores and How to Improve Them
The credit – score classification bracket is:
- Excellent 760+
- Good 700+
- Fair 550+
- Poor >550
Credit scores can be improved by paying the bills on time, and reducing the debt – to – available credit ratio. If you have a negative point on your credit history, wait for the next 6 months before you apply for the loan, and make sure that you make all the payments on – time during this period. You may also discuss with your bank about removing a negative item, in a very productive and polite way.
Debt – to – Income (DTI) Ratio
You can calculate the DTI percentage by dividing your monthly gross income with your total recurring debt in a month. Lenders use the DTI ratio to calculate your ability to repay debts. If your monthly debt is more than your monthly income, then that basically means you do not have any means to make a payments for an additional loan.