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9 Questions to Ask When Applying for a Personal Loan
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There are essential questions to ask when applying for a personal loan. From borrowing amounts to qualification requirements to getting funding, the decision to take out a personal loan is an important one. You need to know how a personal loan is going to impact your long-term finances to make a good borrowing decision. To help you get through the process successfully, here are nine questions to ask.
- What is a personal loan?
- How do personal loans work?
- How much can you get a personal loan for?
- How do you qualify for a personal loan?
- How do you find a lender that you can trust and qualify with?
- How do you get a personal loan?
- What do you need to apply for a loan?
- How long does it take to get loan funds?
- What happens if you can’t repay your personal loan?
1. What is a personal loan?
A personal loan is typically unsecured — meaning no collateral is required — and fairly flexible. It can be used to pay for a variety of expenses.
A borrower is expected to pay back a personal loan on a predetermined schedule. That schedule can range from 12 to 144 months, depending on the lender, though payments are made monthly. Qualifying for a personal loan is dependent on many factors, including your credit score and income.
2. How do personal loans work?
Personal loans offer set repayment terms and interest rates, making it easy to understand the costs over the life of the loan. That’s in contrast to a variable-rate loan that can adjust based on the market.
If you’re looking to take out a personal loan, you’ll want to pay close attention to the APR rather than the interest rate. That’s because the APR includes other costs, including fees.
Common personal loan fees can include:
- Origination fees
- Late fees
- Prepayment penalties
There are two types of personal loans: unsecured and secured. Most personal loans are unsecured, meaning you don’t need collateral to qualify and won’t be risking any personal items of property if you were to miss a payment. Secured loans, on the other hand, require collateral. The upside is that you may be able to get a better interest rate or higher borrowing limit because of that collateral.
3. How much can you get a personal loan for?
The amount you’ll be able to borrow depends on the lender and other factors, such as the state in which you live. Just because a lender offers a certain maximum doesn’t mean you’ll qualify for that amount, and it doesn’t mean you should seek that amount. Your request should focus on how much you need. Here are borrowing amounts from a few lenders:
|How much can you borrow?|
|LightStream||$5,000 to $100,000|
|Payoff||$5,000 to $40,000|
|Rocket Loans||$2,000 to $45,000|
4. How do you qualify for a personal loan?
Personal loan qualification requirements vary by lender. Some, for instance, will only accept borrowers with certain credit scores or debt-to-income (DTI) ratios. Others may be more open to less-than-perfect credit as long as you meet other requirements. A cosigner can be a useful tool for borrowers worried about qualification (or affordability) because of bad credit. Not all lenders allow for cosigners, so check before you decide to pursue a certain institution.
In general, your credit score is a main factor in determining whether you qualify and what APR you’ll receive. In April 2020, for example, the average best-offered APR for those with a credit score of 760 or higher was 11.81%. That’s compared to those with a score of 640 to 679, for which the average best-offered APR was 24.89%.
5. How do you find a lender that you can trust and qualify with?
When you’re looking for lenders, one of the best tools for evaluating their trustworthiness and overall quality is customer reviews. These can help you understand potential obstacles (such as customer service or the ease of the application and approval processes) and where the company shines.
However, as with any review, it’s important to keep in mind that many are written by people who have strong opinions about the business or the specific feature they’re reviewing.
6. How do you get a personal loan?
The personal loan process requires you to invest time and energy if you’re going to get the best loan for you. Not every lender is going to be your best fit, and your needs and values will help shape your search. For example, borrowers who highly value customer service will want to pay close attention to posted reviews. Or borrowers who want a more hands-off approach may see modern conveniences, such as autopay and online tools, as more important.
7. What do you need to apply for a loan?
After you’ve evaluated your options and feel ready to apply for a personal loan, you’ll want to set aside enough time to finish the application. This will vary depending on the lender (and whether you prequalified). For example, an online lender’s application will likely take less time to complete than a paper application from a traditional bank or credit union.
8. How long does it take to get loan funds?
Some lenders provide same-day funding once you’re approved, while others may require three to five business days — or longer — before you get your money. It may also depend on factors including the time of day and day of the week that you accept the loan.
Loan funds are commonly disbursed by direct deposit or check. The method you choose will impact the funding time since waiting for a check to arrive will take longer than an electronic transfer.
9. What happens if you can’t repay your personal loan?
Initially, lenders may charge a late fee. Missed payments are typically reported to credit bureaus after the 30-day mark, which can negatively impact your score. If you continue to miss payments, your account may go into collections, which could lead to wage garnishment. For borrowers with secured loans, it may mean losing your collateral.
Make sure that you can afford your payments before signing for a personal loan; however, we realize unforeseen circumstances may put a dent in your plans. For those who find themselves in the position of not being able to pay, calling the lender to discuss your options is always a good idea. That way, you can better understand what steps you should take to avoid negative repercussions.