Today's loan application process needn't seem overly complicated, even to the first-time applicant. Most lenders follow a boiler-plate methodology for sorting out consumers and creating loan offers based on credit worthiness and the applicant's ability to pay. Those who need money right away, through a personal loan for example, can streamline the review process simply by rounding up documents most-used to support their application.
Before beginnng the application process, decide on a loan product that offers the best financial sense. There are loans secured by collateral, most often the choice for property, business and auto loans. Then there are personal or signature loans that require no collateral with rates determined largely by the applicant's credit rating and history. Personal loans carry higher interest rates since they're not backed by collateral.
1. Choosing the Right Loan
Finding the type of loan that meets financial needs while remaining affordable is the first step in the process. Personal loans from $1,000 to $100,000 are made by banks, credit unions, online lenders, and peer-to-peer organizations. Consumers seeking personal loans can consider a range of options. These include:
- Fixed-rate personal loans: The interest rate remains the same over the term of the loan.
- Variable-rate loans: Interest rates will fluctuate over the term, often rising after an initial period. Some may have caps on the total interest rate the lender can charge.
- Installment loans: Repaid at the same rate over a short period of time, these loans can be secured or unsecured.
- Lines of credit: Secured or non-secured lines of credit allow consumers to borrow up to a maximum amount, paying interest only on the amount they borrow.
- Short-term loans: These "payday" or "cash advance" loans are not secured and carry exorbitant interest rates, often as high as 300 percent. Borrowing from these lenders can create a financial death spiral for unwary or desperate borrowers.
The following steps cover the formal application process for most personal loans:
2. Gathering Credit Information and Documentation
Personal credit is most often the governing factor in whether a consumer is approved for a personal loan. Start the loan application process by getting a free VantageScore 3.0 credit report at LendingTree. Applicants with the best credit may find interest rates on a personal loan this month as low as 5.99% APR. Minimum scores are around 620. For those with poor or no credit, interest rates on a personal loan may be looking at 25 percent or much higher. Depending on the lender, other key documents typically include:
- Personal identification
- Proof of income and employment confirmation (pay stubs, etc.)
- Bank account information and statements
- Housing payments and other debt
- Details of collateral (if appropriate)
3. Evaluating Lender Offers and Reading the Fine Print
Borrowers can round up free offers for personal loans at LendingTree. Lender fees and interest rates can vary dramatically, so reading the fine print on the lender disclosure form is a vital part of the application process. For example, a lender may offer an attractive lower interest rate than a competitor. However, the lender may charge an origination fee that, when added to the total, offsets the savings of the lower rate. Or, a lender may assess a prepayment penalty for consumers who repay the loan prior to the end of the term.
4. Crunching the Numbers
Before choosing an offer at the end of the application process, the borrower should determine their ability to repay the loan without damaging their credit. LendingTree's Loan Payment Calculator will determine the monthly payment on a personal loan based on the total loan amount, loan term, and the interest rate.
Determined the best loan and crunched the numbers? Contact the lender and accept the offer.