What do You Need to Apply for a Personal Loan?

So, you’ve decided to apply for a personal loan, but you have no idea what you need to do to get the process started? Don’t worry, whether it’s for home renovations, a new car, or to pay for a luxury holiday, most loan applications are relatively straight forward.

Throughout this post I will briefly detail the process of applying for a loan, and what documents or other requirements you will need to be successful in your application.

Common Loan Requirements

Although it should be noted that each lender varies in their requirements, however almost all will need the following:

When applying for a personal loan at a bank branch in person, you are allowed to use copies of your personal documentation for the process.

• Firstly, you will be asked for some official photo identification – usually your passport or driver’s license.
• Next, you should ensure that you have your social security number, and at least two months of bank statements (more is better,) you may also be asked for utility bills – these can include electric & water charges, phone bills, etc.
• You will also be asked to provide proof of income, if you are paid directly into your bank then your bank statement should suffice, if not, invoices or pay receipts are fine.

There is a good chance that your lender will want to see that you have had a stable income for at least two years. This can be difficult, since most loan companies will provide loans from the age of 18, yet many won’t process a loan application unless you are 21 or older due to this reason.

If you are applying online, you will also need to have a valid e-mail address, and it is likely that you will be asked for one when applying in person too.

• Finally, you will need a bank account so that your loan can be transferred once you have been approved, without a bank account it is highly likely you won’t meet the necessary requirements for approval. When processing your application, the lender is likely to access your credit score to make a final judgment.

What Type of Credit Do I Need?

If you have no prior credit history or a poor credit rating then it is highly advisable that you improve this before applying for any kind of personal loan. If your credit score is accessed frequently by lenders, this can also result in an adverse effect on your rating – so please bear this in mind.

By improving your credit score, not only will your interest rates be lower, but you will be granted access to more funds if required. Obviously, if you need a personal loan to make unexpected emergency payments for home repairs or similar then it might be to your advantage to find a lender that specializes in poor credit loans.

One way to find the best loan for your situation is to use a loan comparison site such as Crediful.com, where you can easily compare loans against each other and find the best deal for you.

Is a Personal Loan a Good Choice For Debt Consolidation?

One selling point that lenders often push is using personal loans to consolidate your debts into a single payment. By taking out a loan and paying off any other credit payments you may have, you are left with just a single, manageable, monthly payment.

However, there are a few considerations to take into account before you rush off and start applying for personal loans to consolidate your debts. Firstly, is consolidating your debt into one payment going to save you money, in either the short or long term?

Credit cards can be repaid over a considerably longer period compared to a personal loan in which you have agreed to pay the full amount off by a set date. You also need to take the APR (annual percentage rate) into consideration, if you are consolidating your debts the APR needs to be lower than your current fee.

If the loan you’re applying for does have an improved interest rate over your other debts, what is the term agreement for the loan? Are you still saving money in the long term, repaying your loan over an extended number of years?

If not, then you need to reconsider why you are applying for a loan.

Summary

When considering a personal loan, you’ll need to ensure that the monthly loan repayment is well within your budget, if you are hit by financial hardship during an emergency situation and miss payments, this can negatively impact your credit rating significantly.

In some cases, it may be better to stick with your current credit repayments than try to consolidate your debts within a single loan. The only way to truly know is by seeing what your lender can offer you, and comparing it against your current situation.

If payments over the short and long term are lower, then it is probably worth considering.