8 Factors to Consider for Your Personal Loan Application
Personal loans are tools to help consolidate debt or fund large expenses such as a home remodel or wedding. Personal loans give you the opportunity to deal with one lender for a variety of projects and simplify your lending.
You can get started cleaning up your finances by applying for a personal loan. To gain access to a personal loan to help you support your financial endeavors by submitting a personal loan application to potential lenders.
How Does A Personal Loan Work?
Once you apply and get approved for your personal loan the funds that you receive go into your bank account as a lump sum. This gives you the flexibility to immediately work with the money you receive.
You can begin your financing and payment plan immediately, you will start making monthly as soon as the loan is disbursed. The transfer process is virtually immediate as you can see your money deposited into your bank account within 24 hours.
Typically personal loans have fixed interest rates which means that you can schedule out your payments as they will stay consistent every month. Personal loans are unsecured, so there’s no collateral needed behind the loan. However, it may increase your favorability to a lender.
Submitting A Personal Loan Application
If you have decided to apply for a personal loan you want to compare multiple lenders in order to find a loan that offers the lowest interest rate. You can connect with your bank, online lenders, local credit unions, or other banks to see what personal loan programs they offer.
In order to apply for your loan, you need to “qualify”. This means that you need to submit a credit report and undergo an inquiry about your eligibility for the loan. You want to compare different loan programs based on their loan terms and fees and interest rates.
Once you find a lender that you want to work with you will complete a comprehensive loan application. This loan application may include:
- Loan details
- Personal information
- Verification of Income
- Bank Statements
- Credit Report
Many lenders have a simple application process however, you can cater your application to be more favorable to a lender. As long as you submit all of the relevant documents you may be able to hear back about your loan with a quick turnaround time.
Benefits of A Personal Loan
Before filing for a loan you want to be clear about what you will do with the money. It’s important to look at all personal loans as a long-term investment that you do have to pay back.
A personal loan can be the best way to finance a project or unexpected expense upfront. There are many reasons why a personal loan can help you simplify your financial situation and allow you to better deal with unforeseen expenses.
Personal loans can help consolidate debts. You can compile all of your other debts and overdue payments into one monthly, low-interest payment with a personal loan. This grouping might make it easier to work out a payment plan without feeling overwhelmed by an influx of bills.
Typically personal loans offer lower interest rates so you can save money by using a personal loan to pay off a credit card or any other debts that have a high-interest rate.
The lower rate allows you to reduce your overall payment size. A personal loan can reduce the amount of time it takes you to become debt-free. By consolidating all of your debts into personal loan payments you can help better organize your finances.
Finance Unforeseen Expenses
Personal loans can help finance any unforeseen expenses. If you have an immediate need to pay for a home repair, a loved one’s funeral, or medical bills a personal loan can help alleviate financial pressures.
Some medical treatments and expenses require an upfront payment, rather than a long-term payment plan. Alternatively, they may charge additional fees for subscribing to a long-term payment plan. If you prefer to go with an immediate payment but are low on funds applying for a personal loan is a smart solution.
Personal loans can be distributed quickly and give you the money you need immediately. Personal loans can allow you to turn seemingly insurmountable expenses into low long-term financial commitments.
If you are planning an amazing vacation that you want to splurge on, you can get a personal loan to cover the initial costs. Personal loans are a great opportunity for individuals who are comfortable paying off luxury items or vacations through a series of payments.
Factors to Consider for Your Loan Application
When applying for a loan you want to be able to showcase your eligibility through a variety of factors.
You may not know what your lender is looking for in an application so it’s important to put your best foot forward. Here are some factors to consider when creating your loan application.
1. Your Credit Score
One of the primary tools that lenders look at to see your eligibility as a borrower is your credit score. Poor credit is a sign that you would be a high-risk borrower. Typically this will scare off lenders or make them challenge you to present other assets to sell you as a more desirable loan candidate.
With credit scores the higher your score is the better. Lenders typically don’t disclose what their minimum credit score requirement is in the application because your eligibility is built on a variety of factors.
2. Value of Your Collateral
Collateral refers to non-liquid assets. These are items that are high-value that you’re willing to give to the lender if you are unable to keep up with loan payments.
Individuals can put their car or house as collateral in order to show that they do have enough value or financial support to pay off the loan even if it’s not in a liquid form of such as money on hand.
Some lenders don’t allow you to borrow more than the current value of your collateral. For example, if you are using your home as collateral you would not be able to take out a loan that is larger than the current value of your home.
3. Your Employment History
When filling out your loan application you want to demonstrate that you have a strong employment history. This means that you either have been with a company for a long time or have had a very short turnaround between jobs.
You would not be discounted for moving positions or switching companies. Your application is less favorable if you show a history of getting fired and not being able to hold down a position for a duration of time.
Your employment history will show your past employers, job titles, salaries, and dates of employment. Lenders want to be secure that you will be able to maintain a steady flow of income while paying back your personal loan.
4. Your Income
Lenders seek security in the ability of borrowers to pay back what they borrow. By presenting a sufficient and consistent flow of income, you’re able to show your lender that you have the financial means to make continual payments on your loan.
If you have a high-income it is likely that you will be able to opt into a short-term or low-interest payment plan that is more desirable. This is because you are considered a low-risk borrower.
5. Your Debt-To-Income Ratio
Your debt to income ratio takes your monthly debt obligations and compares them to your monthly income. Lenders are able to see this ratio and see how much of your income is flexible and could be allocated towards their payment plan.
Even with a weak debt-to-income ratio, you may still be eligible for a personal loan if your lender is willing to take on a high-risk borrower.
6. Size of Your Down Payment
Depending on the size of your loan it may require a downpayment. This is an upfront payment to the loan that will reduce your monthly payments. A large down payment shows that you are financially stable enough to make a sizable investment in your loan.
If you make a small down payment on your loan you will typically be opening yourself up to higher interest rates and a longer payment plan.
7. Term Length of Your Loan
Based on your loan application, the lender is able to foresee your financial situation for the next few years. Lenders typically feel more comfortable loaning money for a short period of time because you’re more likely to pay back that money.
Depending on the term length of your day may fluctuate the interest rate. Typically, longer loans will have higher interest rates. This trend does depend on the other factors in your loan application as well.
8. How Liquid Your Assets Are
A liquid asset is an asset that can be converted to cash within a short amount of time. Liquid assets include cash, accounts receivable, mutual funds, and investments that can be cashed out.
Lenders like to know that you have some cash or savings that you could easily liquidate if you’re needing to pay your personal loan’s monthly payment or down payment.
The ability to show a lender how liquid you are allows them to feel safe giving you their money to know that you’d be able to keep up with payments. If you are not that liquid, your lender may force you to pay a higher interest rate so that they are not taking as large a risk in loaning you money.
Secure Your Personal Loan Today
Finding the right personal loan can be difficult. However, with a strong personal loan application, you can make yourself a desirable candidate for a loan from nearly any lender.
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