Personal loans are one of the most versatile financial products available. Most personal loans let you do whatever you want with the funds, from renovating rooms in your home to consolidating debt or paying off an old business loan. That said, an experienced loan officer may ask you how you plan to use the funds to help you choose the right type of loan.
The short and sweet answer
Applying for a personal loan is like starting a new relationship. You must answer all the questions asked as precisely as possible (whether they come directly from a loan officer or via an online questionnaire). As a loan seeker, you owe it to a potential lender to give them a complete picture of your financial situation. Plus, if you forget to disclose information or they find out you’ve been dishonest, they’re unlikely to approve your loan. No one wins in this situation.
The lender’s point of view
From the moment you complete a loan application, a lender invests in learning all they can about you. This is because things like your credit score and your debt-to-income ratio (DTI) give them an idea of how you’ve handled your debt in the past and how much debt you currently have compared to your. income. These are things they learn by ordering a copy of your credit report.
They will also want to know where you work, how long you’ve been there, and how much you earn. These are answers you provide. And whether you are borrowing money from a bank, credit union, or online lender, you might be asked about the purpose of the loan. Your answer doesn’t necessarily impact your chances of getting approved for a loan, but as mentioned, a good loan officer can help point you to the loan option that best meets your needs.
For example, some lenders specialize in debt consolidation and can help you understand how a debt consolidation loan works. It makes sense for a lender to want to know that the funds you borrow to pay off an existing debt are being used to pay off the debt (some lenders will even pay off the old debt for you).
Your point of view as a borrower
This is the bottom line for the potential borrower. Once you decide to borrow money – for whatever reason – you focus on finding the perfect loan for you. In addition to an easy-to-manage loan repayment, you want a personal loan with:
To get the best loan, you apply to several lenders. And because the best personal loan lenders don’t do a credit check until you decide to borrow money from them, you don’t have to worry about impacting your credit score. . Instead, you fill out an application and they perform a “soft” credit check that provides insight into your credit history – just enough for them to know if they want to make a loan offer.
Once you have gathered a few loan offers, compare them with each other. This is what you are looking for:
- Which lender has the lowest interest rate? Even a half the annual percentage rate makes a difference in your monthly payment as well as the amount of interest you will pay over the life of the loan.
- Which financial institution charges the lowest fees for lenders? It’s never a good idea to pay more than you need to.
- Do any of the lenders charge a prepayment penalty? If you are hoping to pay off your loan sooner, there is no reason to work with a lender who will charge you for this privilege.
- Which lender offers a loan period adapted to your budget? The faster you can pay off a loan in full, the less interest you will pay. Nonetheless, you need the repayment term for a personal loan to be long enough to make the monthly payment easy to pay.
- What are the loan amounts offered by each lender? Any lender who offers to lend you the amount you requested should be a serious competitor, as long as they offer a low interest rate, low (or no) fees, and no prepayment penalties.
Once you’ve chosen a lender, the rest is easy. This lender will perform a rigorous credit check. They can also ask for additional documents like a tax return. Finally, they may have other questions for you. Your only job is to provide them with the answers they need.