Personal loans can help you cover expenses and any unexpected medical bills. You can repay the loan in monthly instalments with interest. Most personal loans are unsecured, meaning they require no collateral to be placed, unlike standard loans.
Based on your income, debts, and credit score, the lenders determine your creditworthiness; and the interest you pay depends on this too. It can be as low as 6% or even as high as 36%. The interest you are obliged to pay is also termed as an annual percentage rate (APR).
How to Qualify for Personal Loans
There are numerous ways to ensure that you qualify for a personal loan. Firstly, you need to make sure that a personal loan is right for you. Personal loans depend highly on your creditworthiness. Unlike other loans, for a personal loan, you need to maintain a good credit score and not have any debts.
To refurbish your home or to buy a car, you can opt for other specific loans that provide lower interest rates and better repayment periods.
Personal loans are for emergency bills and payments that you can repay with a stable income.
How Much to Borrow
When you borrow any amount, you tend to pay back more than what you took. It is due to the interest rate, which decides how much more you need to pay.
Since personal loans may come with higher interest rates, there is no point paying for what is not necessary. You need to make sure that you borrow what you need and what you can pay back.
If you borrow less, then you may have to turn to much more expensive loans. If you borrow more than what you need, you may have to pay quite a lot of interest.
Ensure that you borrow only what you can repay- do not end up in a debt trap.
Check your Credit
Since personal loans are unsecured, they rely on your creditworthiness. This means that the lenders need to check your credit score and credit reports.
You can get your free credit report at any one of the top three major credit reporting agencies (Equifax, Experian, TransUnion). Such soft inquiries do not affect your credit score or creditworthiness. Only when you apply for a loan, and the lender makes a hard inquiry, your credit score can be impacted.
The higher your credit score, the more chances of being approved for a personal loan and getting a better interest rate.
Where to Apply for Personal Loans
There are multiple lenders available in the market – banks, credit unions, and online lenders.
Banks are the most reputed financial institutions for personal loans. If you already have an account at the bank, you have higher chances of being approved for the loan.
Credit unions cater to certain communities and are run by non-profit organizations.
Although online lenders have become quite popular, a handful of them are scams.
Once you have found out your eligibility for personal loans, apply accordingly for better chances of getting approved.