A surprising thing could be asked of you when applying for a personal loan
Admittedly, gathering everything you need to apply for a loan can be tedious, but on the other hand, personal loans are often one of the quickest loans to get because you can sometimes get the money in a matter of seconds. days. (You can see the personal loan rates you may qualify for here.) That said, you’ll be much better off if you have the necessary documentation for a personal loan and know other key things you’ll want to do before you officially apply. (Also, read this guide first to determine who a personal loan might or might not be right for.) Here’s how to make sure you’re properly armed with everything you need to make the application process as smooth as possible.
1. Gather documentation that a personal lender might require
The specifics needed to determine loan eligibility will vary from lender to lender, but most will ask:
- The loan request (this typically asks for information such as name, address, date of birth, social security, and other personal information, as well as how much you want to borrow and why);
- Identity proof (this may include a passport or driver’s license);
- Proof of employer and income (this may include a W2, pay stubs, bank statements, 1099 forms or tax returns); and
- Proof of address (this may include utility bills or a lease or mortgage statement, proof of insurance on your home, voter registration card or property tax receipt).
This is only a preliminary list, so be prepared to provide further information. It could even include your educational background, says Annie Millerbernd, personal loan expert at NerdWallet, who explains that if a lender asks about it or what you studied in school, they may be trying to figure it out. earning potential. “Your level of education is unlikely to trump income or credit,” says Millerbernd.
2. Pull your credit score in advance and improve it before applying if necessary
Before applying for a personal loan, check your credit score because credit is, like most loans, a big factor in determining the rate you will get or even if you get the loan. The best personal loan terms typically go to people with credit scores in the mid-700s and above, says Ted Rossman, senior industry analyst at Bankrate. “You can potentially get a personal loan with a lower credit score, but especially when you drop below 700 on the FICO scale, your odds are going to get noticeably worse and your interest rate should be significantly higher,” says Rossman. According to Bobby Ritterbeck, president of personal loans for Best Egg, the minimum credit score you’ll likely need to qualify for a personal loan is around 610 to 640. (You can see the personal loan rates you may qualify for here.)
“Banks generally prefer good or excellent credit over a personal loan application, while a credit union may look more at your overall financial situation than your credit score alone. Online lenders tailor their loans to borrowers in different situations, so there are good and bad credit online loans,” says Millerbernd.
As with any loan, the higher your credit score, the better the terms of your personal loan. “If you have strong credit, you can get a loan with a single-digit APR. However, if you have poor credit, the APR could reach 30% or more, well beyond what you would pay with a typical credit card,” says Matt Schulz, chief credit analyst at LendingTree.
3. Understand the other factors that personal lenders are looking for and improve on them too
“Your credit score isn’t the only thing lenders will consider. The length of your credit history and your debt-to-equity ratio can also affect your ability to get a personal loan,” says Ritterbeck. To find your DTI, add up your recurring monthly debt, including credit cards, mortgage, car loan, student loan, and more, and divide by your total gross monthly income, which is the amount you earn before taxes, withholdings and expenses. Typically, lenders like to see a DTI of 43% or less. If you can pay off some debt or increase your income, that’s a good way to improve that number. (You can see the personal loan rates you may qualify for here.)
4. Know if you get a secured or unsecured personal loan
Because unsecured personal loans are exactly that – unsecured debt – you don’t have to put assets such as your home or car as collateral. Secured personal loans, however, will require valuable assets including investment accounts, real estate, and collectibles to use as collateral, should you default on the loan. If you get a secured personal loan, you’ll need to show proof of property you own, such as a paid-off vehicle, jewelry, savings accounts, investments, art, and more.
5. Understand if a personal loan is right for you and how you will repay it
Personal loans aren’t for everyone: While they can be effective tools for debt consolidation or essential projects where you need money fast, they aren’t suitable for discretionary spending. And if you decide to take out a personal loan, make sure you have a solid plan to pay it off in full and on time.