While everybody has heard about loans before, not everybody has gone through the application process. It can be intimidating, especially if you’ve never done it before, so we’re here to provide everything you need to know in plain English. If you need a loan, we’re about to tell you how to get one.
We’ve outlined the typical application process below in several steps. Where there may be some diversion, the basic steps in this guide and guidance from the loan provider should still keep this information relevant and useful to you. Most of it helps with applying for a personal loan, the most versatile loan type that is useful for individual borrowers. You can learn more about loans at CreditNinja.com.
Crunch Some Numbers
The first step of a loan application starts with you. Before you even contact a loan provider, you should take a look at your own finances to make sure you can handle the loan responsibly. You don’t want to take out a loan when you can’t repay it properly, otherwise, you’re just inviting more money problems in the future.
This isn’t just bad for you, it’s also bad for lenders since they need to get that money back and will have to expend resources to do so. The lender will avoid business with you in the future and, as a result, your credit score will suffer. We have more information on credit scores below.
Avoid all of this by making sure you have plans to pay the loan back. Any plans you have should be futureproofed against unforeseen costs so that an emergency or an unexpected event doesn’t knock you off your loan repayments. Loans may come with an origination fee, which is deducted from your loan amount, so make sure you have enough money left for your intended purposes.
Most loans are paid monthly, though this is negotiated with your lender during the application process.
Know Your Credit Score
When you know your credit score, you know how attractive your business is as a borrower. Borrowers with poor credit scores will have a harder time getting loans from many borrowers or they’ll have to jump through extra hoops to get the loan.
Your credit score is a reflection of your previous financial obligations and how well you paid them back. Late payments and irresponsible handling of money damage your credit score, and future lenders pay attention to that data before granting or denying loan applications. A credit score of 600 is average according to the FICO system. Below 600 is good while 700 and above is considered good or excellent.
You can get loans with lower credit scores by putting up collateral or accepting shorter repayment periods and higher interest rates. Be wary of so-called lenders who market to lower credit scores, some of them will prey on the desperate with predatory deals or even loan scams.
Choose A Lender
Now you should be ready to find a lender to borrow money from. Find as many options as you can and check out what loans they offer, and the conditions attached to them. You’ll need to decide on secured or unsecured loans, with unsecured options being more available for those with good credit scores. If you have a bad credit score, you may need a co-signer on your loan.
You can get loans from banks, credit unions, and private lenders who may specialize in certain loan types. Some loans, like those offered by the Small Business Administration, are backed by the government.
Choose A Loan
Next, take a look at your chosen lender’s catalog of loans. Find the one that’ll suit your financial situation and your goals. Loans typically come in the following types:
- Debt Consolidation: These loans combine outstanding loans into one easily payable debt, possibly with changes to the repayment period or the interest rate.
- Emergency Loans: These loans are offered for a number of purposes but will always be paid out fast to meet unexpected costs that occur, like car breakdowns or repairs.
- Medical Loans: These loans are to pay for more serious medical procedures and function a lot like emergency loans.
- Home Equity Loans: These are loans where you borrow against the value of your home, which is put up as collateral. This means the home could be repossessed if you fail to make payments.
- Home Improvement Loans: Non-home equity loan option that allows you to secure some money without putting your property on the line. Typically won’t pay out as much as home equity loans.
- Auto Loans: These are loans where you borrow to pay for a vehicle. If you can’t pay, the vehicle can get repossessed by the lender to make their money back.
Go Through The Application Process
From here, you should go through the application process with your chosen lenders. You’ll have to go to them to apply, be wary of lenders who contact you first, and seem desperate for your business as legitimate lenders won’t spam your mailbox out of the blue.
From here, you’ll need to provide your name, address, and contact information along with financial info like your income and employment status. You’ll choose your loan and be presented with terms and conditions attached to the option you’ve chosen, including any fees thrown into the deal and the expected repayment period. You’ll also be subject to a credit check.
In terms of documentation, every lender will have slightly different requirements. The more popular the institution and the higher your asked loan amount, the more documentation you’ll typically have to provide.
The entire process can be done online from the comfort of your own home nowadays. Once the application is done and the lenders have accepted your request for the loan, you’ll be notified of your approval.
You’ll need to accept the terms so that the loan is finalized and it hits your account, which will usually be a week unless the loans specifically demand a fast payment. Many lenders also offer automated repayment, so you don’t need to worry about them every month.