Are you in need of a personal loan but aren't sure where to find the best options? Here's how to take out a loan online that suits your needs.
You can blame fears of an upcoming recession, low salaries, or even just poor financial management, but the fact of the matter is that more people are taking out personal loans today than ever before.
Currently, the personal loan market is at an all-time high of $138 billion, an increase of roughly 17% from the past year.
Are you thinking of taking out a loan to finance a major purchase, pay down your debt, handle medical bills, or even just to pad your emergency fund?
If so, then we know that learning how to take out a loan can feel like a serious challenge -- especially if you don't have a perfect credit history. While personal loans are comparatively easy to apply for, you need to protect yourself and your financial future by doing your research now.
Read on to learn the basics of taking out a loan that won't get you into more financial trouble than you're already facing.
1. Understand How Personal Loans Work
Before we even get into the specifics of how to take out a loan, let's make sure you're clear on how personal loans actually work.
You can apply for a personal loan from a bank or credit union, but if you want the process to go quickly, we suggest using an online lender. (Going online also makes it much easier for you to compare offers from multiple lenders.)
The good news about personal loans is that you can use the money in whatever way you wish.
In other words, you don't need to present a business plan to a potential lender, provide them with a copy of your medical bills, or make a strong argument as to why you need the money.
Instead, lenders are much more interested in your ability to pay back the loan.
The majority of personal loans today are unsecured loans, which means that you don't need to put up any collateral like your car or home on the loan.
Many people opt for personal loans because they give you cash quickly, can generally lend up to $50,000 or more, and allow you to pay back the debt in monthly installments.
However, with this convenience comes the potential for higher interest rates and fees.
2. Check out the Interest Rate and Fees
The average consumer has over $5,000 in credit card debt.
If you want to take out a loan, you need to do some serious research on the interest rates and fees associated with your loan. You don't want the loan to actually end up costing you much more than its worth -- and for your inability to pay it back to impact your financial future.
In general, you should expect interest rates anywhere from 5% to a whopping 36%. On top of that, there may also be some fees associated with the online loan.
These include things like a loan application fee, an origination fee, or even early repayment penalties.
You should absolutely take a look at the interest rates and fees and decide if the loan is truly a wise financial move for you at this time. The good news? You can -- and should -- negotiate with lenders.
Make sure you get quotes from multiple lenders and then use the lower interest rate offered by one lender to negotiate with the lender you like best. Your credit history and current income will also help you to get a better interest rate.
So, do what you can to boost your credit score before you apply for online personal loans.
3. Research the Lender
When you're looking for the best personal loans, you also need to be certain to conduct tons of research on the lender themselves.
Sadly, scammers can and do exist in the loan market -- and you don't want to be a victim. We suggest running the company's name through the Better Business Bureau database, reading testimonials, and asking about their overall industry experience.
When speaking with them, ensure that you feel they clearly and honestly explained how the loan works, the terms of the loan, and how they will secure your interest rate.
You should also ask to speak with references directly and, most importantly of all, ask them about other lending opportunities. This doesn't just ensure you get the best possible loan for your needs. It also helps you to determine if they're using high-pressure tactics to get you to say yes to the personal loan.
4. Study the Application Requirements
Finally, in learning how to take out loans, you'll also need to meet specific application requirements.
In general, you'll need a credit score of at least 600 to qualify. However, if you have bad credit, there are online personal loans that don't require a credit check (just be ready for a higher interest rate.)
You'll also need to prove that you have a current income, usually in the form of a letter from your employer and/or a pay stub. You'll need to be at least 18 years of age, and be able to prove that you live at your current address.
Additionally, you may need to provide past bank statements to prove your financial stability.
How to Take out a Loan: It's Time to Get Started
Now that you know both how to take out a loan online and whether or not a personal loan is a good fit for you, it's time to begin the application process.
Remember to take your time and always compare interest rates and loan terms. Above all, never take out more than you can afford to pay back.
While it might be tempting to borrow thousands more than you truly need, you'll also be tempted to spend it -- landing yourself in even more debt.
A good rule of thumb?
Always borrow the least amount of money possible.
Looking for more financial advice on lending, raising capital for your business, or just improving your credit score? Our blog is always here to give you the top financial tips, so bookmark us to make sure you don't miss out.