Every now and then even the best of us will be cash strapped. It is this time of the year when holidays create big spending sprees. The first idea most of us get when we no longer have enough money for all the things we might need is to get a loan. Personal loans are a great alternative for all of us who don’t want to dig into our savings or make a minus on the credit card. This type of loan is getting more and more popular, and only this year more than 20 million Americans borrowed some cash.
Getting the money is the easy part; returning it could be a problem. This is why you need to have a clear plan on how to return what you took. To be able to get the right amount and return it accordingly you need to know a few things before you go to a bank or some other financial institution that deals with lending money. So, we have listed here for you the five things to check before you apply for a personal loan. Be aware that these are not strict guidelines, but our attempt to help you when you start your search for a loan.
1. See Your Debt-to-Income Ratio
Source: housing.com
Before applying for a personal loan it’s better to be clear on your other debts. For one, clearing your credit cards and any other loans you might have is an excellent idea. If you are clear in this department, you are ensured to have a lower debt-to-income. This is vital because lenders look into matters like these. If you already have existing loans or are deep into your credit cards your application might be rejected, or approved with a high-interest rate. This ratio can be calculated when you divide your debt by your income. This is an easy way to see where you stand by yourself before even applying for any loan. If you want to know if you’re eligible for a loan despite existing debt, your ratio needs to be under 50%. Only 30% or 40% of your income in the worst-case scenario must be directed to your debt. If the number exceeds this percentage, you’re in the wrong spot and shouldn’t even apply for a loan. Even if you go forward with your application, be prepared for rejection as this is seen as a massive red flag by lenders, and it’s not something that they’re willing to back at.
2. How Much do you Need?
Of course, when you’re in a pinch you know precisely how much money is it that solves your problems. While you can find the smallest of loans that start at $500 most lenders offer minimum amounts set in the region between one and two thousand. These are some standard amounts that people need short-term. If you want more, some lenders deal with that, but higher sums might not fall into the category of personal loans. If you need something less, which could be one or two hundred bucks you’re better off saving some money down the road a bit or lending the money from a family member or a close friend.
3. View Your Credit Score and history
Source: forbes.com
These things matter. Your loan application might be rejected if you’re credit score and history aren’t good. These two factors get evaluated all the time and you’re probably well aware of that. You also know that credit score varies from 350 to 850. The things that constitute it are matters such as payment history, the state of your debt, and the length of your credit history. Even if you’re aiming for a smaller loan you could get rejected if your credit score isn’t up to standard. The average most lenders ask for revolves around 600 or 650. If you’re lucky you’ll encounter some institutions that don’t look into these matters for smaller personal loans. This shouldn’t turn you around from them as it doesn’t suggest that some shady business is their act.
4. Streamline Your Applications
This could be an essential matter. If you are looking for a loan, it is ideal to look around before you find the right choice. But, while you could choose between many lenders you shouldn’t submit your application to all the places you visited. No this is a major red flag in this industry. These companies estimate their risks and they will check if you have made an application at some other place, and if you have, your application might get rejected. What most companies will do is called a hard inquiry and these inquiries remain written in your credit history. These statements will lower your credit score as you’ll be deemed as a credit hunter. Besides you’re only going to accept one loan, so the rest that doesn’t get picked up by you would also be remembered by your credit history and they’re not a good sign. So, be sure to be streamlined with your applications, and keep an eye on your credit score as your activities might lower it. Of course, if you don’t want to check out multiple lenders go straight to a renowned one such as https://snowbikefestival.com/.
5. Ask About The Interest
Source: corporatefinanceinstitute.com
While hard cash in your hands is an amazing thing, you eventually need to repay it. The issue that bothers most people is that you need to return more than you took. This is how the loan system works and earns, and there’s nothing strange with it. But, it is good to look into how much will you have to return when the time is due. Interest is influenced by many things but most of all by your credit score and the length of your loan. This is important as you don’t want to return too much. Depending on your circumstance the interest could go from 3.5% to 30% and even more in some cases. The lowest interest comes to the people on short loans and with a great credit score. The average length of a personal loan is two years where the average interest stands at 9.63%.
