There are times in your life when there is something you really want to buy or pay for but the funds just aren’t there. Maybe you have a job, a really good job at that, but for one reason or another simply don’t have the funds necessary to make the transaction. Whether it’s paying an unforeseen bill or buying that new outfit for Aunt Julia’s wedding, you need more money than you currently have available in your checking account.
You’ve heard of personal loans and even have friends who have qualified for them, but until now you have never had recourse to apply for one. Well, the time is now and, unfortunately, you don’t know what to do. You don’t know where to look or how to get started looking. Actually, there are just a few things you should know and these are things you can learn quite easily. Here is some of what you need to know before going shopping for that personal loan.
Credit Scores vs. Credit History
If you have spent any amount of time online, you know that your credit score is important in almost every aspect of your life. This score isn’t actually your creditworthiness but rather an indication of your creditworthiness based on your credit history. There are three main credit bureaus in the United States when you go to apply for a personal loan: Equifax, Experian, and TransUnion.
Each has its own criteria for assessing your credit score, but your credit history is huge. It is, as the name sounds, how you’ve paid loans and other bills in the past. When applying for a personal loan, a lender will glance at your score and if it falls within a certain range, they will look more closely at your personal credit history.
Building Credit with Personal Loans
One of the things you should be working to accomplish when qualifying for a personal loan is to build credit. Here again, your history is going to be huge. If you want to build good credit to qualify for future loans and perhaps even larger ones like for an automobile or a home, it is imperative that you build good credit.
Personal loans are a way to build that credit, so don’t abuse them. And, it is even suggested that many lenders will not offer you a personal loan if you already have one that remains unpaid, even if it is in good standing. Some lenders have a one personal loan policy no matter who underwrites the loan.
Online vs. Brick and Mortar Lenders
There are two main ways of applying for a personal loan but most consumers in the 21st century seem to prefer the online route. Sometimes you can have your preliminary approval within mere seconds when applying online and that’s what most people prefer. It is a lot less hassle than driving from bank to bank or lender to lender, and you can even use a comparison website where your application will be submitted to several lenders at once. Then you can check out the rates they offer and other terms before applying to the lender of your choice. Remember, just because those lenders came up as possibilities it doesn’t mean that you have to choose them, and it doesn’t mean that when you make your final application, they will approve your loan. Everything is contingent on making that final application.
What Most Lenders Require You to Have
Whether applying online or at a brick-and-mortar establishment, you will need to meet certain criteria. Most lenders will require you to have:
- Proof of income
- A bank account
- Proof of age – usually 18 or older
And again, most lenders will not want you to have an existing personal loan. The amount of the loan you may be approved for will almost always be based on what lenders feel is your ability to repay that loan. It is unclear why they don’t want you to have an existing personal loan, but most likely it is because this shows your credit problems run deeper than what is indicated by your credit score and history. It may also indicate that you have problems paying debts on time and so need to procure another loan to help you pay existing bills!
What Delinquent Payments Will Mean to Future Loans
This is something else you should understand prior to taking out a personal loan. If you have any doubts whatsoever about your ability to repay that loan timely and eventually in full, you should not take out that loan. Your ability to qualify for future loans will be based on your credit history, just like this loan. What you need to do if you have any doubts whatsoever is to stop long enough to consider whether you really need that money or if it’s a want rather than a need.
Reasons Why That Personal Loan Is Important
Sometimes it’s good to take out personal loans simply because of what they can mean to you in the future. Some people take out personal loans to finance a vacation and other times they use personal loans to pay off the existing debt at lower interest and finance rates. If you are trying to build credit, a personal loan is a great place to start simply because they are usually loans with smaller amounts being borrowed.
Someday you may wish to buy a new model car or a home, but for now, you may simply be trying to build your credit. This is one of the most popular reasons for taking out personal loans but just remember, timely payments are crucial. Always compare interest rates and only borrow what you know you can afford to pay. See which agencies they report to and if they don’t report to all three, which credit bureaus will have the greatest impact on future loans you may want to procure. Once you’ve learned the above, you should be good to go.