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What to Consider When Applying for a Personal Loan

If you’re planning to borrow money to consolidate credit card debt, move to a new home, or meet any financial need, a personal loan can be a good option. To get this kind of loan, there will usually be no collateral needed. But certainly, there are other points you should take into account before applying for one.

Credit Score

With a strong credit score, you have a better chance of qualifying for a personal loan and getting a lower interest rate. If yours is hardly impressive, work on it before submitting an application. First off, you’ll have to start making on-time payments and spending under your credit limits. Also ask for a free credit report, review it and dispute any errors you might find.

Getting Prequalified

Pre-qualifying for a loan offers you a glimpse of the offers you will likely receive. A lot of online lenders will do a soft credit check during prequalification, which will have no effect on your credit score, so take advantage of it early on. At prequalification, you will be required to supply some basic information such as your income source, employer background, Social Security number, and so on.

Terms and Conditions

Like any other type of financing product, personal loans come with terms and conditions. Pay close attention to prepayment charges, APR additions (your APR should cover all fees from the get-go) and automatic withdrawals (get a low balance alert programmed into your checking account to avoid overdraft fees). Look for a lender that also offers flexible payment features, forwards payments to your creditors (if you’re consolidating debt), and actually reports payments to the credit bureaus.

Submitting a Personal Loan Application

Once you have compared a number of loan providers, you can pick one that is most suitable to your needs and preferences. The key requirements you will be asked for include proof of income (bank statements, W-2 forms, etc.), identification (state ID, driver’s license, etc.) and verification of address (lease contract, utility bill, etc.). Expect the lender to do a hard credit check as well, and know that this will affect your scores to a minor extent. Provided all needed documentation is in place and you actually meet the bank’s or lender’s requirements, the funds will likely be forwarded to your account in a week’s time.

Though a personal loan can surely help you survive a financial difficulty, it is important to explore and study your options before picking one. Find the best rates, borrow only as much as you need, and be prompt when making your payments. And finally, make comparisons in order to find the best.

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