Personal Loans

 

A personal loan is money borrowed for almost any purpose. Personal loans are uncollateralized, meaning they don't require security assets. People use personal loans for many purposes, including small home improvements and debt consolidation. The credit score is the main element that determines whether you qualify for a personal loan.


The interest from a personal loan is computed annually and depends mainly on your creditworthiness. Although most personal loans come with fixed interest rates, some may have varying interest rates that may rise and fall at any time. Personal loans have an average repayment time of less than five years. Luckily, you can pay off your personal loans before the repayment period is over and save money by avoiding the remaining interests.

 

How to determine if you are eligible for a personal loan ?

 

The main factors that you should explore to know if you qualify for a personal loan are:


1. Creditworthiness
The main criteria used by lenders to know if you qualify for a personal loan is evaluating your creditworthiness. The plus thing is that you can obtain your credit reports and scores for free on AnnualCreditReport.com. On this site, you can get a free credit report from the major credit reporting firms: Equifax, Experian and TransUnion. If your credit score from the credit reports is high, you will likely get a personal loan. Lenders should also help you determine your credit scores in case you find it hard to do on your own.

 

2. Eligibility
The eligibility test is the first evaluation that a borrower should do to know whether it is worth going through the loan application process. An eligibility check involves confirming your lender's factors such as minimum income required, credit score, and length of your credit history. If you determine that you don't qualify for a personal loan at this stage, you should repeat the same procedure on another lender to see if you qualify.


3. Prequalification
Prequalification is a preliminary step in the loan application process that gives the borrower a preview of the prospective loan and the lender of the borrower's creditworthiness. Since the lender does a soft check on your credit, this step does not affect your credit score. To know if you prequalify for a loan, you should fill a prequalification form, submit it to the lender for assessment and wait for approval or denial. If the prequalification conditions are met, the application is approved and sent to you, indicating the prospective loan amount and interest. The borrower may proceed to formally apply for a loan on approval of the prequalification offer.

 

Where to get a personal loan ?

 


Many institutions in the financial industry offer personal loans. The most common sources of personal loans are banks, online lenders, credit unions and consumer finance. If you question the lenders' eligibility and especially those on the web, you should consult the consumer's Financial Protection Bureau (CFPB's) before applying for a personal loan.

 

Determining the amount to borrow

 


Now that personal loans can be used for absolutely any purpose, many consumers fall in the trap of borrowing more money than they actually need. You should always evaluate the total amount you get from all your income-generating activities to know if you can afford the personal loan. Large personal loans can be overwhelming to pay, while smaller loans may see you resort to other more expensive loans in the future.

 

How to apply for a personal loan ?

 


To ease the loan application process, you should first gather all the documents indicated in your prequalification form. The most common forms required by personal loans lenders include bank statements, social security number, state-issued ID, employment proof and income proof. You should submit all the needed documents to your lender and wait for formal approval or personal loan denial. The lender on approval should disburse the money to you either on the same day or before the week is over.

Final thoughts

If managed well, a personal loan can be beneficial in steering you towards your long-term financial goals. Despite personal loans being offered by a wide variety of lenders and in various flexible terms, you should only go for them after carefully evaluating your personal needs. Also, check your creditworthiness before going for a personal loan, as this is the primary factor that lenders will check to know if you qualify.

 

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