Personal loans can come to the rescue if you want to buy something you need right now without saving for the item for a long time. They allow you to finance any of your personal needs and divide the entire cost by a few months or years, making the purchase quite affordable.
Still, you may face some difficulties at the selection stage and find yourself not knowing what to do to obtain this form of borrowing. At Laurens State Bank, we will help you understand what steps you need to take for your smooth personal loan experience and what requirements you may be asked to meet first.
The steps below will help you decide on a personal loan and apply for it with ease.
Your credit score is one of the most important factors when it comes to traditional forms of borrowing. Conventional lenders assess it thoroughly as it demonstrates your current financial and credit shapes, along with how you've managed your debts in the past.
Your credit score is calculated based on the information from your credit report. This document is a list of records showing all your loans, credit balances, payments, and any entries regarding your violation of financial obligations.
If you manage your debts and finances responsibly, lenders consider you a reliable borrower and may be more willing to work with you. Any negative marks, such as late or missed payments, loan defaults, bankruptcies, or multiple hard credit checks, cause a drop in your credit score. The lower your credit rating, the lower your chances of getting approved for a loan at favorable terms.
Most US lenders typically use a FICO scoring model to assess your creditworthiness. It represents your credit scores as three-digit numbers from 300 to 850. Although each credit bureau may set its own assessment criteria, here are typical credit score ranges and their understanding:
Below 580: poor. This means you've made some major financial mistakes in the past. Lenders will consider you risky and may either reject your application or offer you unfavorable loan terms;
580 to 669: fair. Fair credit is a subprime score range, meaning that you already have a chance to get a personal loan but will be offered higher interest rates. Lenders may also ask you to provide a repayment guarantee, such as collateral or a co-signer;
670 to 739: good. Borrowers with good credit can qualify for almost any personal loan options, provided that they have a high-enough income and meet other basic lenders' requirements. This indicated that they are reliable, have a strong history of on-time loan and bill payments, and know how to manage different forms of credit;
740 to 799: very good. If you have a very good credit score, you're most likely to get lower interest rates. This may also result in less fees associated with your loan, lower closing costs, and smaller down payments;
800 and above: exceptional. People with excellent or exceptional credit can usually qualify for the best possible loan terms. Still, for most personal loan types, having good or very good credit is enough.
Most personal loan lenders require a borrower to have a credit score of at least 670. Still, there are loan providers that accept people with fair and poor credit, even though they offer higher interest rates and less repayment flexibility. Knowing your rating will help you better understand what options you can qualify for and choose the right lender that considers borrowers with your rating range.
To review your credit score, request copies of your credit report from three major credit bureaus or visit AnnualReports.com to get all three copies in one place.
You need to fully understand how much money you need before requesting a loan. First, it's crucial to determine your loan purpose and calculate the amount you need to cover the cost. Then, you need to calculate your monthly loan payment based on the sum you're going to request and the approximate interest rate offered by lenders for your credit type.
Most lenders have online loan calculators, allowing borrowers to evaluate their loan payments, interest, and the total loan cost. Based on the data, you can decide whether you can afford this extra payment, along with your other mandatory expenses.
Laurens State Bank stands for responsible borrowing. We strongly recommend you borrow only what you can comfortably repay on time. Evaluate your current budget and expenses, and don't take on extra debt if you already struggle financially. Turn to a credit counselor instead and create a practical debt management plan to avoid further financial challenges.
Personal loan lenders are not created equally. They may work under different conditions as long as they align with federal and state laws. This means that two similar financial institutions may set very different loan terms and qualification criteria. Therefore, it's important to do your research and review offers from multiple loan providers in your area.
Pay attention to the lender's requirements, borrowing terms, and other specifics to ensure you can qualify for the products they provide. Also, look at the customers' reviews to be aware of the lender's reputation and any potential pitfalls you may face. Then, choose several loan providers that seem reliable and suitable.
Most lenders now allow customers to pre-qualify for their loans online in a matter of minutes without much paperwork. You need to fill out a simple form and specify some basic personal, bank account, contact, and income details needed to make a preliminary loan decision. Once you submit a form, a lender will evaluate your data and send you approximate loan terms it can offer you.
The best part of it is that pre-qualifying usually doesn't involve any hard credit check, so your credit score won't be affected. You can pre-qualify for the amount you need from several loan providers and get multiple loan offers.
Once you receive preliminary offers, review the terms, paying special attention to the loan APR, repayment options, any associated charges and penalties, and other factors that can influence your loan cost and repayment flexibility.
Also, don't forget about the origination fees. As they are usually deducted from your initial loan amount, they may affect the sum you will get on hand. Account for this expense in advance to request the right loan amount and realistically assess the loan cost. This way, you will be able to choose the best possible option from those offered.
After you choose a lender you want to work with, complete the final application by providing the supporting documents and any extra details your provider may need. It may be either an electronic process via the lender's website or a procedure that requires your personal store visit. The final assessment may sometimes take several business days to several weeks due to a hard credit check performed. This may also temporarily decrease your credit score by a few points.
Keep in mind that the terms you get at the pre-qualification stage are not 100% guaranteed. The lender will review your documents before making the final decision. Therefore, you need to re-check your loan terms once again before signing a contract. Only accept the offer if you're fine with the final terms offered.
Once you sign the loan agreement, the lender will deposit money into your active bank account. Some lenders may also offer you a check, but a direct deposit is the most commonly used funding method. The time it takes depends on the lender itself and your bank's cut-off times. While some loan providers offer same-day or next-day deposits, others may need about 2-5 working days to make a money transfer.
Before applying for a loan, you need to make sure you meet the lender's requirements and can qualify for a loan. Although eligibility criteria may vary by lender, some common ones include:
Be at least 18 years old;
Have a stable source of income;
Have an active bank account in your name;
Be a US legal citizen;
Meet a minimum credit score requirement.
Besides the criteria mentioned, there are extra factors most loan providers pay attention to. Let's take a closer look at them.
A lender will pay special attention to how you managed your previous debts. Not only your credit score but also your on-time or late payments, credit mix, and credit utilization will be closely considered. Therefore, most personal loan lenders perform hard credit checks to assess this information. This inquiry may take several days to complete.
Lenders make money by lending funds to you. Therefore, they want to be sure you can repay what you borrow on time along with interest. Each time you apply for a loan, financial institutions consider whether the amount you earn on a monthly basis is enough to cover your new debt payment obligations. When calculating, lenders will consider the amount you have after covering all the mandatory monthly payments, such as rent, utilities, and other debts.
This ratio shows how much of your gross monthly income goes toward paying your debts. A DTI below 40% (it's recommended to aim for 30% or 35%) is considered good, while a higher level can be a sign of the financial stress you experience. Therefore, lenders may be less willing to deal with you due to the risk you perform.
Many lenders require an applicant to be officially employed to qualify for a personal loan. Some financial institutions accept self-employed individuals, provided that they have regular income and can provide proof. Alternative sources of income may also be considered but are less likely to qualify.
If you have bad credit or present other risks, lenders may ask you to provide a repayment guarantee. This may be collateral, such as your property, vehicle, or savings account balance, or a co-signer who will be responsible for repaying the loan if you default. This way, a lender will also pay attention to the value of your pledge or your guarantor's solvency and creditworthiness.
Lenders usually want to see the information you provide in your application form is accurate and true. Therefore, they ask for a certain set of documents that verify your identity, solvency, and creditworthiness. Here's what you typically need to provide:
Identification: valid ID, passport, driver's license, etc.;
Proof of income: bank statements, pay stubs, tax returns, W-2 or 1099 forms, etc.;
Employer's information: employment verification letter, your employer's contact details;
Proof of address: current utility bills, rental or lease agreement, mortgage agreement, etc.
Personal loans are not the easiest loans to get due to strict requirements. However, they also offer beneficial terms, making them very attractive for borrowers. There are practical ways to increase your approval chances. Here are some of them:
Improve your credit score. Make your loan and bill payments on time, maintain a diverse credit mix, don't use more than 30% of your available credit limit, and don't open new accounts too frequently. You can also consider credit-builder loans and secured credit cards or ask your loved ones in good standing to make you an authorized used on their credit account;
Provide collateral or a co-signer. If your application is backed by any valuable asset or a person who shares the repayment responsibility with you, it may make lenders more confident about getting their money back;
Pay off existing debts. By doing this, you will reduce your DTI and the financial burden you carry. As a result, a lender will see your responsible financial behavior;
Increase your income. Even if your credit score is not perfect, your income may offset this risk for lenders. Find a part-time job or consider freelancing and provide proof of various income sources to make your application stronger;
Request the right loan amount. If you ask for the sum you can't comfortably repay, a lender may reject your application, even if you have good credit. Therefore, it's important to make all the calculations in advance and ensure you can show your ability to handle this new debt;
Choose the right lender. Some lenders may set requirements you can't meet, especially if you're new to the world of lending. Instead of doing your best to impress them or get their approval, you'd better find a loan provider with less strict requirements. You can always turn to online lenders or find an option to consider at Laurens State Bank.
Personal loans are handy if you need to finance a big purchase or a major life event without overburdening your budget. Still, they should be approached responsibly. Before requesting a personal loan, learn more about how they work and what steps the application involves. Make sure you choose a reliable lender and know what documents you need to provide. Prepare all the information in advance and double-check the requirements. Although it may take some work, this will result in high approval chances.
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