How To Apply For A Personal Loan Online?
How to apply for a personal loan online? A personal loan is money that you borrow for almost any purpose, including debt consolidation, an unexpected medical bill, a new appliance, a vacation, or even a student loan. You pay back the money — including interest — in monthly installments, usually two to five years. Most personal loans are unsecured, meaning they are not secured by collateral.
The interest you pay is expressed in an annual percentage (APR). The average APR for a personal loan is 9.41% as of June 2019 but can range from 6% to 36% depending on your credibility, including an examination of your income, debt, and credit score.
How Do You Qualify For A Personal Loan Online?
There are many steps you need to take to qualify for a personal loan, the first is to make sure it’s the right one for you. For example, if you want to borrow money to renovate your house or buy a car, a home or car loan may have a lower interest rate. Unlike unsecured personal loans that are based solely on your creditworthiness, these loans are secured by the house you want to repair or the car you want to buy.
While paying for a family vacation or consolidating debt falls under the category of personal loans, you can also check out a 0% APR introductory credit card. If you go this route, make sure you can pay off the balance before the 0% fee expires.
Decide how much you want to borrow
Keep in mind that when you borrow money, you are not just paying off the original loan. In addition to that 0% card, paid in cash, you also pay interest or “rent” on the money you borrow. There’s no reason to pay interest on the money you don’t need, so borrow only what you need. On the other hand, if you borrow less than you need, you may be forced to turn to more expensive borrowing sources at the last minute.
Finally, make sure that you can repay the loan amount. There is nothing worse than being financially overwhelmed when it is better to wait a while for your finances to improve.
Check Your Credit
Since personal loans rely heavily on your credit rating, be sure to check your credit score and obtain current credit reports from each of the three major credit reporting agencies — Equifax, Experian, and TransUnion — before applying. None of these actions, also known as light investigations, will not affect your credibility or credit score. This only happens when you apply for a loan and the lender asks a supposedly difficult question.
You can get a free credit report from one of the major reporting agencies once a year by going to AnnualCreditReport.com. Many credit card and loan companies offer a free monthly credit score from one or more of the major credit reporting agencies. Services like Credit Karma provide free credit scores, credit reports, and other financial services. Some, like Credit Karma, are free. Others offer a free trial and charge an ongoing fee. You can also pay for your credit score online at credit reference agencies or other providers.
Impact of Credit Score on Personal Loan APR/Loan Amount
Offers vary by lender, but the information above can be an indication of what to expect when applying for a personal loan. In addition, a personal loan calculator can make it easier to determine the amount of a monthly payment you may receive based on your credit score.
Know your rights under Regulation Z
In 1968, the Federal Reserve Board (FRB) implemented Regulation Z, which in turn created the Truth in Lending Act (TILA), intended to protect consumers when making financial transactions. Personal loans are part of this protection. This scheme now falls under the auspices of the Consumer Financial Protection Department (CFPB).
Subpart C – TILA Articles 1026.17 and 1026.18 require lenders to disclose the APR, borrowing costs, amount financed, and total payments when it comes to personal loans taken out. Other required disclosures include the number of payments, monthly payment amount, late fees, and whether there is a penalty for paying the loan early.
Where To Get Personal Loan Online?
Personal loan sources fall into two main categories: those with a license or banknote and those without. The main distinction between the two categories concerns regulation.
Banks and credit unions
Institutions licensed or chartered by the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), and the National Credit Union Administration (NCUA).
Local banks and credit unions are the first places many people think of when considering a personal loan. If you apply there, you will likely come face to face with a loan officer, the experience will be personalized, and the officer will be able to guide you through the application process without any hassle. Compared to other options, banks tend to have higher loan qualification standards. If you are already a customer, the bank can take a break from this area.
The qualification process for credit unions is generally less rigorous than for banks, and interest rates tend to be lower than for banks. However, you must be a member to do business there. Neither banks nor credit unions typically charge fees for taking out loans, which is an advantage.
Non-banking financial institutions (NBFIs)
Sources without a banking license are known as non-banking financial institutions (NBFIs) or non-banking financial corporations (NBFCs). The main difference in service provision is that NBFIs cannot accept deposits. NBFIs are governed by the Dodd-Frank Wall Street Consumer Protection and Reform Act of 2010 and are overseen by the CFPB.
NBFIs include online and brick-and-mortar finance companies, insurance companies, peer-to-peer (P2P) lenders, payday lenders, and other non-bank entities. Finance companies typically charge higher interest rates than banks or credit unions, but they can approve you for a loan if a bank doesn’t. P2P lenders may offer low-interest rates if your credit is good, but much worse rates than banks if you are considered a credit risk. Payday loans are notoriously bad loans, with high-interest rates and often hidden costs.
Check Your Eligibility
Visit the websites of lenders or call to determine if your financial profile qualifies for a loan from that lender. Find out if there is a minimum credit score required and if there is an income cap. Determine whether there is a required minimum credit history — three years or more is common — and what is considered an acceptable debt-to-income ratio.
Once you’ve eliminated loans that you don’t qualify for, turn to the lenders that are likely to give you a loan. Many lenders offer pre-qualification or pre-approval with a smooth consultation. Prequalification or pre-approval does not guarantee that you will get the loan – only that you meet the general financial profile of the people to whom the lender has lent money in the past.
Being pre-qualified usually means filling out a short online form where you provide your name, address, income, and the amount you want to borrow. The lender performs the aforementioned smooth credit check and lets you know – sometimes within seconds, sometimes a few days later – whether or not you qualify for a loan.
Check The Details
Now that you know you are pre-qualified, it’s time to pre-qualify the lender. Review the information and disclosures in your pre-approval letter and revisit the website to review the following:
Expected loan amount, APR, monthly payment, and loan term. It may or may not be accurate, but it gives you something to compare other pre-approved loans against.
- Fees and Fines. Will this loan have an origination fee? So how much? What are the penalties or fees for late or missed payments? Are there any other costs?
- Type of interest. Is the interest fixed or variable? Do I have a choice and if so, what is the difference in fees?
- Unsafe or protected. Will this be an unsecured or secured loan? What is collateral required for a secured loan?
- Automatic withdrawal. Are automatic withdrawals of monthly payments required or optional? If optional, will I get a lower interest rate if I agree to automatic withdrawals?
- Arbitration. Is arbitration mandatory in case of conflict or can I sue the creditor?
- Prepayment fine. If I pay my loan early, will I pay a fine?
- Fine print. There is always fine print, even in pre-approval letters. Look for something that hasn’t been answered above or that you haven’t thought of.
How To Apply For A Personal Loan Online
After narrowing the field, it’s time to apply for a loan. If you plan to apply to more than one lender, try to pool your applications within a 14-30 day period. This is known as a “purchase against payment”, and multiple questions are treated as one question, which has a small impact on your credit score.
Your pre-approval letter should tell you what additional documentation is required for an actual application. Collect these documents first. You will likely need to provide proof of income (salary, W2 forms), housing expenses, debts, official ID, and Social Security Number (if not provided for pre-approval). Submit your application and documentation and wait for the results.
Get the loan
Approval and financing times vary by lender, but you can expect something close to the following.
Loan Approval Times
Once approved – ideally for more than one loan – choose the one you like best, sign the papers, and get financing. So, of course, get ready for the next part: paying off the loan.
What are the Different Types of Personal Loans?
The different types of personal loans are:
- Debt Consolidation Loan: Merging Multiple Debts into One New Loan
- Co-signer loan: a loan for which you need a co-signer to be eligible
Secured and unsecured loans (unsecured are more common)
Fixed and floating rate loans (fixed are more common)
Where can you find a personal loan?
You can find a personal loan in the following places:
- Your bank or credit union
- A peer-to-peer lending site
- An online loan provider
- A referral from a friend or family member
- A private loan from an investor
Can you pre-qualify for a personal loan?
Yes, you can usually pre-qualify for a personal loan online in minutes. You fill in some personal details, such as the size of the loan you need, your income, address, and other considerations. You can see which loans you are likely to qualify for and then compare them to get the best rates and terms. Remember that a prequalification means you are likely to qualify for the loan, but it is not a guarantee.
Are personal loans secured?
Personal loans are usually not guaranteed. This means that you do not need collateral, such as your house or car, to secure the loan. Instead, you get the loan based on your financial history, including your Fico score, your income, and any other lenders you need to meet.