A personal loan can have a huge impact on your finances, so it's important that you do as much research as you can. In fact, before applying for any type of loan, you should arm yourself with the knowledge that allows you to make one of the biggest financial decisions of your life. When it comes time to apply for a loan, compare lenders to ensure you get the best personal loan rate.
We put together a list of the most frequently asked questions about personal loans. Be sure to check with your personal loan lender for more information.
What is a personal loan?
A personal loan is an unsecured loan, meaning no collateral is 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 lenders.
A personal loan differs from a credit card in that loans usually have low fixed rates interest rates and they are paid back in equal monthly payments. Use a personal loan calculator to estimate what your monthly payments would be and the amount of interest you will ultimately pay.
How do I qualify for an unsecured personal loan?
To qualify for a personal loan, lenders will make a determination based 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
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 you take out a $10,000 loan and the fee is 3% of the loan, the amount you will actually 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 the 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% intro APR 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.
Check out the best personal loan rates below!