If you are in need of a personal loan, there are several options you can choose from, but it is important to realize that personal loans require an approval process that is not always easy.
It used to be fairly easy to get a personal loan from a bank or credit union. If you had steady income and a decent credit score, you could get approved for a personal loan or a line of credit without any problems.
However, following the last recession and the bank bailouts, the criteria have significantly changed, and it is now a lot harder to get a personal loan.
What is a personal loan?
Personal loans are funds borrowed from a lending institution for personal reasons. The borrower can apply the funds to almost anything they want, which may include debt consolidation, bills, vacations or home repairs and improvements. They are responsible for repaying the loan with interest under a set term that can vary according to the type of personal loan you choose.
Financial institutions offer a number of different personal loans. These may include the following:
- Fixed interest rate – Fixed interest rate loans have a monthly payment that remains the same throughout the term of the loan.
- Variable interest rate – Variable interest rate loans can vary throughout the term of the loan. Generally, the interest rate starts off really low and can increase dramatically throughout the term of the loan.
- Unsecured loan – An unsecured loan does not require a source of collateral. The loans typically range from $500 to $10,000, depending on your credit score and income. With unsecured loans, the bank takes all risks, because there is nothing for them to take back if you default on the loan.
- Secured loan – Secured personal loans require you to put up a source of collateral to back the loan. Collateral typically consists of a house or car.
How to get a personal loan
- Credit score – In order to get a personal loan, you must have a good credit score and history. It is important to have carefully managed your past credit payments and used a small percentage of the credit extended to you. Typically, a credit score of 700 or more will qualify for a personal loan from most lenders. Having a high credit score is important especially when applying for unsecured personal loans.
- Steady Income – If you have a steady income from a job that you have held for two years or more, most lenders will be willing to offer you a loan. The higher your income is, the greater the chance that a financial institution approves your request is. If you are unemployed or often change jobs, this is a red flag to lenders that will likely get you denied.
- Co-signer – If your credit is not the greatest or you have not been at your current job for very long, you can also consider finding someone with good credit and steady income to co-sign your loan. This will typically appeal to the lender and help you get approved.
Finding personal loans from a lender requires specific criteria, but, if you meet their requirements, getting approved should be a breeze.