With inflation at a 40-year high, many consumers may be considering a personal loan to keep up with the rising cost. In this blog, you’ll learn the factors lenders may consider along with tips to help you qualify.
What is a personal loan?
A personal loan is a type of installment loan issued by a bank or financial lending institution. Personal loans can range from $50 to $100,000 or more. Like most installment loans, personal loans typically have a fixed monthly payment, with interest, that you pay back over a set period of time. Your payment, interest rate, and the specific loan terms you may be offered will be determined by several factors. Among those, your credit score and whether or not you apply for a secured or unsecured loan option will likely play a role.
Types of personal loans
If you’re looking to borrow money, there are a few types of personal loans to consider. Below are overviews for an unsecured and secured option.
Unsecured Personal Loan
An unsecured personal loan relies heavily on your creditworthiness, and other personal financial items, to potentially receive approval. As a general rule of thumb, excellent credit demonstrates a history of successfully borrowing and paying back the money. Because of this, lenders are more likely to approve applicants who have good credit without the need for collateral as a safety net. The higher your credit score, the more likely it may be for you to also be offered favorable loan terms such as a low-interest rate and flexible payback options.
Secured Personal Loan
Unlike an unsecured loan, a secured personal loan considers collateral in lieu of good credit. For example, if you need a personal loan and do not meet the minimum credit score requirement, a secured loan will allow you to use items such as your car or home as collateral to make a deal. Because of this, a secured personal loan could be a good option for borrowers with poor credit to consider. However, it’s important to realize that if you fail to make your payments on a secured loan, the lender could obtain your collateral as payment.
Factors lenders may consider when applying for a personal loan
Depending on the lender and type of personal loan you are applying for, factors such as your income, employment history, and DTI, among other factors, may be considered. On top of this, your credit score will likely be heavily weighed during the approval process. To demonstrate, the chart based on Experian data below reveals which credit scores rank the highest based on two common scoring models.
|Very Poor||300-499||Very Poor||300-579|
If your credit score falls within the good to excellent score ranges above, it may increase your chances of getting approved. Excellent credit may also help you qualify for a low-interest rate and better loan terms overall. With this in mind, maintaining or achieving healthy credit before you apply could help you avoid costly fees and qualify for the best loan terms available.
Tips to help you qualify for a personal loan
One of the best things you can do to potentially qualify for a personal loan is to maintain or achieve a healthy credit score. To access software solutions you can use to manage your 3-bureau credit reports, scores, and more, click below to activate ScoreShuttle now.
In addition to maintaining good credit, paying down large sums of debt, keeping a good employment record, and being responsible with your finances could also put you in a more favorable position to potentially get approved.
Ways you can use a personal loan
There are many reasons why a borrower may want to consider a personal loan along with various uses for the money. Most commonly, personal loans are taken out to cover some of the scenarios below.
The need for cash alternatives during a recession or after a job loss is another possible use for a personal loan. A personal loan can helps make ends meet if money is tight after an unforeseen economic event.
If large sums of debt from credit cards and other excessive bills are becoming too overwhelming to tackle, it might be worth looking into a personal loan to consolidate debt. Debt consolidation is the act of taking out a loan in order to pay off numerous bills at once. The biggest benefit to this option is the ability to simplify your debt into one bill with one payment.
A home renovation or unplanned home repair such as a leaky roof may also cause a borrower to consider a personal loan.
Regardless of your reason for wanting a personal loan, you should always weigh the pros and cons, along with your ability to make your monthly payments before you sign.
Getting the green light on a personal loan may seem intimidating at first. But by practicing good credit and financial health, you can ease the approval pressure and give yourself the best odds on personal loan approval. If you’re in the market for a personal loan, ScoreShuttle not only gives you the power to manage your 3-bureau credit scores online – but now, users can also shop and compare personal loan offers up to $50,000 in just a few clicks. Click below to see which personal loan offers you may qualify for now!
Resources: [https://www.usatoday.com/story/money/2022/04/12/inflation-rate-cpi-highest-40-years-prices/7284054001/ [https://www.experian.com/blogs/ask-experian/credit-education/score-basics/what-is-a-good-credit-score/]
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