Personal loans are some of the country’s most useful financial products. If you’re planning home renovations, putting a child through college, or consolidating high-interest debt, a personal loan may help. Whatever the reason for getting a loan, be sure to take these important steps before applying.
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Review Your Budget
It’s wonderful to dream, especially if those dreams are attainable. Before applying for a personal loan, go over your family’s budget and determine if there’s room for an additional payment. If you can make the monthly payment after paying all your bills and saving for the future, you’re good to go.
Don’t Take On Any More Debt
Today’s lenders are leery of those who don’t pay their debts. When assessing a potential borrower’s creditworthiness, they look for red flags such as:
- Insufficient income
- Excessive outstanding debt
- Careless assumption of new debt
It’s easy to check these boxes if you’ve just bought a new car or racked up credit card charges in the time before a loan application. While it’s best not to get a loan to cover a temporary shortfall, emergencies happen. Many Americans are only one crisis away from financial ruin, and not everyone has time to prepare for these challenges. That’s why it’s important to manage debt properly, even if you’re not getting a loan.
Assess Your Credit
Roughly 20% of Americans who regularly review their credit reports find mistakes, and even one error can bring your score down. The higher the score, the more favorable loan terms you’ll be offered. If, upon reviewing your credit report, you find errors, file a dispute with the appropriate credit bureau. According to the FCRA (Fair Credit Reporting Act), the major credit bureaus have 30 days to investigate the questioned items. If the information cannot be verified, it must be deleted.
Set a Goal
When getting a loan, it’s best to set realistic goals. Knowing why you’re getting a loan is a great way to determine whether it’s the right time to assume such a liability. For instance, if your ideal loan comes with a 5.99% interest rate and a five-year term, look for one that’s as close as possible. If you can’t qualify for that perfect loan, consider:
- Working to increase your credit score
- Waiting for more favorable interest rates
- Finding another way to finance your project
Get Organized
For some borrowers, the hardest part of the process is gathering the necessary documentation. Make things simple by having these documents in hand.
- State ID or driver’s license
- Your birth certificate, passport, or Social Security card
- Your last two pay stubs
- The past two years’ tax returns
- Current bank statements
- A utility bill, lease, or mortgage statement that verifies your address
Every lender does things differently, and they’re likely to ask for certain documents. The sooner these papers are submitted, the easier you’ll find it to choose the right loan.
Preparation is Essential
When getting a personal loan, a little prep work goes a long way. By reviewing your credit history, you’ll find areas for improvement. For instance, if your DTI (debt-to-income) ratio is too high, you can take steps to increase income or pay debts. Improving your credit will help you get more favorable terms, as will organizing your paperwork.
Get the Right Loan Now
Personal loans are enormously useful, especially if you’ve made the effort to improve your position as a borrower. By following these easy tips, you’ll improve your standing with lenders and increase the chances of success.
