2018 Personal Loan FAQs
It is important that your own research is done before applying for any loan, you have to be knowledgeable in the field that you’re going to make one of the biggest financial decisions in. It is also important to shop around for the best personal loan rate before one is picked.
This information was put together by general questions asked by users and answered to the best of our ability. For more personalized responses, contact your personal loan lender.
What is a personal loan?
A personal loan is an unsecured loan, meaning no collateral needed. An unsecured loan is not backed by anything of value, for instance, your home or car. Personal loans are given by banks or credit unions along with many online vendors.
They are a bit different than credit cards, loans usually have low fixed rates interest rates and its paid back in equal monthly payments.
How do I qualify for an unsecured personal loan?
To qualify for a personal loan, it is determined entirely on your credit score, income, and monthly cash flow since there is no collateral being given.
Qualification and rates vary from lender to lender, they typically look for a credit score of the range between 600 to 700 and above.
What can I use a personal loan for?
A personal loan is not the same as a loan for your home or an auto loan that have their own specific use. A personal loan can have many uses, from a big medical expense, consolidating your credit card debt or even your wedding expenses.
The most common use of all is credit card consolidation because of their low interest rates. You can turn five credit card debt payments into one fixed monthly amount which already includes the interest rate.
What is a secured personal loan?
Secured personal loans are backed by collateral. The reason for collateral gives the lender a sense of security that the loan will be paid back in full. The lender is exposed to risk when the money is given, so by ensuring repayment with a home or car, it minimizes the risk.
Will it cost me to apply for a personal loan?
There are many lenders that will take out their “cut” for lending the money before it is transferred to your account, this is called an origination fee. For instance, if the fee is 3% of the loan and you take out $10,000, the amount you will receive is $9,700. The fee percentage depends on your credit profile.
Usually, there is no application fee when applying for a loan, so if you do not get approved you will not be required to pay anything out of pocket. If there is any doubt, ask before you apply because application fees are non-refundable.
Does pre-qualification hurt my credit score?
During the pre-qualification process, the lenders usually do a soft credit check to determine where your credit profile stands. A soft-pull inquiry will not show up on your credit report.
Continuing with the loan application, that’s when the lender is chosen will verify your creditworthiness with a hard credit check that will affect your credit score, slightly.
What are the steps to obtaining a personal loan?
Step 1: Always, always check your credit score
- The stronger score the better, you can qualify for a personal loan at a much lower interest rate. Try to build it up as much as you can before applying.
Step 2: Get pre-qualified for a personal loan
- The pre-qualification process gives you a little insight to the offers that will be going your way. The lender will need personal information to start the process.
Step 3: Shop around – don't settle until you find the one
- Considering a secured personal loan or having a co-signer can lower your monthly interest rate.
Step 4: Compare other credit options
- Can you qualify for a 0% interest credit card?
- Secured loans can lower your interest rate
- Adding a co-signer may also lower your interest rate
Step 5: Read the fine print on the agreement
- Read about any pre-payment penalties, automatic monthly withdrawals from your account, etc.
Step 6: Final approval
- Your lender will ask for proof of income, address verification, drivers license, etc.