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August 5, 2022

Personal loans can have a lot of financial benefits if you find the right loan with the right lender. The right personal loan can help you pay off a big-ticket loan or even reduce high-interest credit card debt. When used correctly, a personal loan can be a powerful personal finance tool.

  1. Identify the purpose of the personal loan
  2. Prequalify for a personal loan
  3. Fill out an application
  4. Compare rates and fees

1. Identify the purpose of the personal loan
If you’re looking for a personal loan, the first thing you need to consider is why you’re getting the loan. Once you have identified what you’ll be using the money for, you can narrow down your search. Here are some of the top reasons for taking out a personal loan:
  • Debt consolidation
  • Home renovations
  • Medical or other purposes
Debt consolidation: For example, if you’re consolidating debt and you have an iffy credit score, consider talking to your credit union. If you’ve been a customer with the credit union for a while, they may be more willing to extend you a loan to help free up cash than another lender.

Multi-lender marketplace Credible can show you a variety of debt consolidation loans, offering loan amounts from $600 to $100,000. 

Keep in mind that if you take out a personal loan to consolidate debt, they may require that you close credit card accounts or require that you let them submit payments on your behalf to ensure you use the funds as requested. Make sure your credit union offers competitive rates, so you free up as much cash as possible to pay off your debt.

If you have questionable credit, you may be more limited in your options for personal loans. While there are still options available, you may have to pay higher interest rates or settle for a smaller loan amount.

If you need quick cash to fund a home renovation project, you can use Credible to compare rates and find a lender with APR ranges, loan terms, and loan amounts that fit your needs.

Medical or other purposes: If you have a specific purpose for your loan, you have more options for saving money. For example, several companies offer medical loans. These loans typically offer a much lower APR.

2. Prequalify for a personal loan
Applying for a personal loan is simple. If you opt to work with an online lender, you may be able to “prequalify" for a loan. The prequalification doesn’t guarantee that you will be approved but lets the lender know you’re a potential borrower.

If you want to shop around for a loan, prequalification can save your score by limiting the number of hard inquiries that appear. Credible can walk you through the pre-qualification process, which allows you to see personalized prequalified rates.

3. Fill out an application
Many lenders (even local credit unions) have an online application available. Once you fill out the form and submit your application, you can expect a response within a few hours. The lender may ask for additional information and conduct a short interview.

If the lender approves your personal loan, you’ll have to fill out additional forms accepting the loan and payment terms.

Personal loan applications will request the following information:
  • Name and address
  • Birthdate
  • Social Security Number
  • Employment status
  • Proof of income
  • Rent/Mortgage statements
  • Access to credit report
  • Debt statements (if you plan to consolidate)
4. Compare rates and fees
One of the most important considerations when choosing a personal loan is the interest rate. Your credit score, where you live, your choice in a lender, the loan amount, and the purpose of your loan can all affect the interest rate you’ll pay. If you have a high credit score, you’ll likely be able to snag loans with the best rates.
Top reasons to apply for a personal loan
While you can take out a personal loan to fund educational needs or to purchase a car, it may not be the most affordable way. Student loans and car loans often have lower interest rates.

Personal loans offer flexibility. Unlike auto loans, mortgages, and student loans, you can use the funds you receive from a personal loan to cover a multitude of expenses. Flexibility makes personal loans an attractive option to people who need access to funds within a short time.

There are many reasons people seek personal loans. Some of the most common uses of a personal loan include:
  • Debt consolidation
  • Home renovations
  • Medical expenses
  • Wedding expenses
  • Vacation
  • Moving expenses
  • Large purchases
  • Funeral expenses
  • Funding a small business
  • Investment
Taking out a personal loan can be a simple way to free up some cash to pay off debt, build your business, take a vacation, or handle a family emergency. However, a personal loan is only beneficial if it’s the most affordable way to access extra cash. Ask questions, look at your finances, and come up with a plan before taking out a loan so you can enjoy the benefits of personal loans while reducing your financial risk.

Don't worry about having to navigate personal loan options on your own. Credible can help compare personal loan companies (and, hopefully, land you some of the lowest rates).

SOURCE: FOXNEWS                                                                IMAGESOURCE: Pixabay