According to the U.S. Chamber of Commerce, personal loan balances doubled from 2015 to 2019. By 2019, personal loans accounted for around $143 billion in debt, and there’s a good reason that many people were turning to these versatile financial tools.
Find out more about personal loans and what to do when applying for a loan below.
What Is a Personal Loan?
A personal loan is exactly what it sounds like: it’s a loan that can be used for personal reasons, typically at the borrower’s discretion within certain reasonable restrictions that vary by lender.
Personal loans are usually installment loans. That means you get a certain amount of funding at an agreed-upon interest rate and terms and then make monthly payments on the loan (like you would on an auto loan) until you pay it off.
What Can You Use a Personal Loan for?
It’s a good idea to know why you are applying for a loan. Lenders may ask you to provide a reason that you are completing an application for a loan with them. In some cases, lenders themselves might have rules about what types of loans they might approve — some personal loan lenders don’t approve loans for debt consolidation, for example.
For the most part, though, you can typically find a personal loan option to cover a wide variety of expenses. Here are some common reasons people might apply for a personal loan:
- To cover a minor or major purchase, such as a new refrigerator or computer
- To pay for unplanned expenses, such as air conditioning or car repairs
- To pay off higher-interest debt, such as credit cards
- To help build credit
How to Get a Personal Loan from a Bank or Other Lender
To get a personal loan, you must complete an application for one.
Every lender has different qualification criteria. Some will check your credit and make a decision based primarily on your credit score and credit history; others will check your credit but use it as only one factor to evaluate you as a borrower. Still, others may not check your credit at all.
Regardless of lender requirements, here are some good personal loan process steps to follow if you plan to apply for credit:
1. Understand your own credit report.
Before you apply for a loan, it’s a good idea to understand where you stand, financially speaking. Consider checking your own credit reports so you know what lenders might see. This also gives you a chance to correct any serious issues or errors on the report before you apply for loans.
You can get a free copy of your credit report from each of the major credit bureaus via AnnualCreditReport.com. Since there are three major credit bureaus — TransUnion, Equifax and Experian — you could get one free credit report every four months if you time it correctly. And through April 2021, you can get one free report weekly due to additional assistance provided by the bureaus to help people manage their finances during the COVID-19 pandemic.
2. Research loan options before applying.
Every time a potential lender pulls your credit for the purposes of evaluating you for a loan, it causes a hard inquiry on your credit report. Each recent hard inquiry — those from the past year — can cause a small drop in your credit score.
So, shopping around by simply completing application after application to see what sticks can hurt your credit score. Instead of doing it that way, take your time and research loans first. That way, you can apply for only one or maybe two loans that you are fairly certain will meet your needs and that you have a good chance at being approved for.
3. Align loan expectations with your budget.
Whether you have great credit going into a personal loan or you’re actually looking to apply for a loan with bad credit, you certainly don’t want to end up with worse credit when the process is done. The best way to ensure your personal loan doesn’t impact your credit negatively in the long-term is to be certain that you can make your payments on time consistently. Make sure you know what your current income and expenses are and how much you can afford to budget monthly for the loan payment.
What to Bring When Applying for a Loan
Once you’re ready to apply for a loan, you’ll need to gather some information for the application process. What you’ll need in order to apply varies by lender, but here are some common requirements:
- A photo ID. You may need to demonstrate that you really are who you’re claiming to be. Unfortunately, there are people who use the credit histories of others to get loans in their name, which is why most lenders want to see a valid photo ID, such as a driver’s license. That’s true whether you’re applying in person or online; in the latter case, you may need to take a picture of or scan your ID and send it to the lender for review.
- Proof of income. Credit scores aren’t the only thing lenders care about. They also want to know that you make enough to be able to pay back the loan. You may need documents that demonstrate you have consistent employment and earn a certain amount. Common ways to provide verification of income include W2s and paycheck stubs. In cases where you’re self-employed or have other nontraditional forms of income, you might need to show bank statements.
- A bank account in good standing. If you’re applying for a loan online, the lender needs a way to transfer funds to you. Many simply require that you have a checking or savings account that they can transfer the money to. Some lenders, including Wise Loan, can process funds as quickly as the same day when you’re approved for a loan.
- Personal information. You may also need to provide personal information when completing the application. That can include your name, address, phone number, email address or even your Social Security number. What information is required depends on the application process of the lender.
How to Apply for a Loan with No Credit
If you don’t have any credit history or your credit history is very short because you’re young, you might still be able to apply for a personal loan. Some personal loans are specifically designed for people with little credit history and are meant to help them build credit.
To apply for a loan with no credit or with bad credit, look for lenders such as Wise Loan which don’t necessarily require good credit to approve you. You’ll also want to ensure that the lender does report to the credit bureaus so your timely payments will positively impact your credit history. Make sure you have gathered information to prove your income and ability to repay the loan and shoot for a reasonable loan amount at first. Lenders are more likely to approve those with no or poor credit for smaller amounts to start with.
Apply for a Personal Loan Today
Wise Loan’s personal loan application process is fast and easy. It takes around 5 minutes to complete the process, and you can do it all online. If you’re ready to apply for a personal loan, complete the Wise Loan application now.