When you’re applying for a loan, whether online or in person, you might be asked what you plan on using the money for. This is actually a fairly standard question, though it’s not asked by all personal loan lenders. The best way to answer this question is to answer it honestly.
Why Do Loan Applications Ask for a Reason?
You might consider it none of the lender’s business why you want the loan. In reality, though, it’s very much the lender’s business. The lender is agreeing to give you the money and expects to receive a return on that investment. How you’re planning to use the money helps the lender evaluate you as a borrower.
Even more importantly, the reason for the loan can actually help the lender understand which type of product might be best for you. If you want a loan so you can buy a car, a vehicle loan typically provides a lower interest rate than an unsecured personal loan, for example.
Finally, all lenders have different policies, and some may not provide loans for certain uses. An online lender specializing in small installment loans for emergency or personal purposes might not fund business loans, for instance. And some loan companies don’t provide funds for debt consolidations though they might fund loans for medical bills or major purchases.
This is where it pays to do some research before you apply for a loan. You want to be sure that your needs align with the types of loans a lender offers. Otherwise, you could risk an unnecessary denial and a hard inquiry on your credit report.
Common Reasons to Apply for a Personal Loan
When it comes to personal loans, you can use the funds for almost any type of expense — depending on the policies of the lender. In fact, some personal loan providers don’t even ask why you need the loan. If you pass their application requirements, you’re in, and what you do with the money is your business as long as you pay it back as agreed.
Nonetheless, it’s useful to take a look at some common reasons to apply for a personal loan. In most cases, these reasons are considered to be legitimate and won’t raise speculation when you put them down as an answer to loan application questions.
Unplanned medical expenses can wreak havoc on anyone’s budget. In many cases, providers will work with you to make payment arrangements for these types of expenses, but that isn’t always possible. And even if the hospital or doctor’s office is willing to work with you, they may want a certain amount upfront or only be willing to float the debt for a short period of time.
If you leave your medical bills unpaid, they might be turned over to collections. That can lead to collectors calling and emailing you, and worse — it can also lead to a new tradeline being reported on your credit reports as a negative item, which is probably something your credit score doesn’t need at this point in time.
Instead of dealing with this, you might consider applying for a loan online. You can list medical emergency or expense as the reason for the loan and then use the funds to pay off those bills.
Another reason to apply for a personal loan might be to consolidate your debt. It typically works like this:
- You have some higher interest debt, possibly credit cards. You can only afford the minimum payments, which means you could be paying on this debt for years.
- You get a personal loan with a more affordable installment payment. You might make payments on a monthly basis or every two weeks, but in many cases, the total you pay out on the single loan monthly is less than the total minimum payments on your credit cards.
- You only have to worry about the one loan payment, so it’s easier to ensure you make the payment on time. That’s good for your credit in the long-term.
- Depending on the situation, you might pay off the debt a lot faster with a loan like this.
There’s one potentially large con to debt consolidation of this type: If you keep the credit card accounts and run them up again, you’ll quickly double your personal debt. Debt consolidation loans only work well if you’re disciplined.
Because of this, not all lenders will approve a loan for debt consolidation. Make sure your lender deals in these types of loans before you apply.
Procuring a personal loan might be the way to go if you need to make a major purchase and didn’t have time to save up for it or don’t want to use your emergency savings fund. Major purchases that you might make with funds from an online loan could include a new HVAC or refrigerator, a piece of fine jewelry such as an engagement ring or a computer or new television for the living room.
Installment loans might also be available to help cover the cost of home improvements. That might include options such as kitchen or bathroom renovations, upgrades to appliances or flooring, a new roof, or rewiring or replacing pipes in an older home.
Common Personal Loan Requirements
Personal loan requirements can vary by lender. Common loan requirements can include:
- A legal address in the country or state in which the lender is allowed to offer loans
- A checking or savings account where funds can be deposited, particularly when dealing with online loans
- A checking account for automatic payments, if required by the lender
- Proof of income
- A credit score that is above the lender’s minimum requirement
But what if you want to apply for a personal loan with bad credit? You do have some options, including Wise Loan. Your credit score isn’t the one-and-only factor in whether you can get a personal loan.
How to Apply for a Loan Online
Applying for a personal loan online is a fairly easy process. Here’s a step-by-step guide to follow.
- Use a personal loan calculator to understand what your payments might look like. You can find these online and enter how much you want to borrow. Then, you can change payment terms and interest to see what various payment scenarios might look like. This helps you know what type of loan you can afford.
- Research the lender. Only apply with reputable, responsible lenders.
- Research loan options. Read up on what loan options the lender offers and determine if any are a good match for you.
- Carefully follow instructions when applying for the loan. Online loan applications can be short and sweet but double-check everything. You don’t want a simple typo causing a denial.
- Be patient. While online lenders can often process a loan application in minutes or even seconds, be patient. Don’t re-click or close the window if your application is processing, as that might impact whether or not it goes through appropriately.
- Be available for follow-up questions. In some instances, the lender may need to ask you for more documentation or information. Be available to respond quickly so you don’t hold up the loan process.
Applying for a Loan with No Credit
While credit score is often a factor in the loan application process, at Wise Loan we know that not everyone has an ideal score. You might not have any credit yet because you’re young. Or, you might have had some financial mistakes in your past that your current credit score is paying for. Either way, you may still qualify for a personal loan with Wise Loan. Apply today to find out!
The recommendations contained in this article are designed for informational purposes only. Essential Lending DBA Wise Loan does not guarantee the accuracy of the information provided in this article; is not responsible for any errors, omissions, or misrepresentations; and is not responsible for the consequences of any decisions or actions taken as a result of the information provided above.