Like most people seeking a personal loan, you undoubtedly want to improve your chances of an approval. Whether you need a personal loan for home improvements, debt consolidation, business start up or a car repair, it is important that you understand what banks look for in an applicant.
Here are five practical tips for seeking a personal loan.
Know your credit before applying
When applying for a personal loan, it isn’t enough to assume that you have a good credit score. Yes, you may pay your bills on time each month. But if you don’t check your credit report and credit score, there could be hidden problems.
Too often, loan applicants don’t learn of credit issues until a bank rejects their loan application. This slows down the entire process, as it can take weeks or months to clear credit report errors or improve a low credit score.
There is a minimum credit score required for personal loans, which varies by bank. Some banks set the minimum at 680, whereas other banks prefer applicants with credit scores over 700.
Pledge collateral
If you have an excellent credit score, the bank or credit union where you apply may not require collateral. However, even if you don’t need to pledge collateral, it’s a good ideal to do so.
There’s always the risk of losing your collateral if you default, but when you pledge personal property, this can persuade a lender to lower your interest rate, which results in lower payments.
Shop around for the best rates
You may have a good relationship with your personal bank, but this financial institution may not offer the best interest rates on personal loans. Request a free no obligation quote from your personal bank, and then shop around and compare rates with other banks. Remember, the goal is to get the best rate possible, and you can only do this if you compare offers.
Understand the loan terms
No two loans are created equal. Before signing your name and closing on a loan, read the agreement carefully and make sure you understand all the terms.
It’s a done deal once you sign your name. For this matter, you cannot call the bank a month later to renege on the loan. Some loan officers may rush the closing process, however, you have the right to take your time and read the agreement.
Check the agreement to ensure that the loan balance is correct, and make sure you understand the interest rate, the monthly payment and the estimated payoff date. Ask questions if you need clarification.
Only apply for what you need
When you apply for a personal loan, the bank may decide that you qualify for a sizable amount. Don’t fall for this trap.
The more a bank lends, the more interest they earn. Plus, the more you borrow, the higher your monthly payment. To maintain reasonable, affordable payments, only apply for what you need and nothing more.
