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5 Things To Do Before Applying for a Personal Loan

A personal loan is a good way to consolidate your debt, to pay medical bills, to repair your car or your home, or even to go on a vacation.

When you’re applying for a personal loan, you face the possibility of getting denied.

For example, when a lender reviews your credit report and finds out that you have late payments, you have gone over 30 percent of your credit limit, you have closed oldest credit cards, and have applied for too much credit at the same time, it’s possible that they might deny you the personal loan or give you a high interest rate personal loan. That’s why it’s imperative to do the following before you apply for a personal loan.

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5 Things You Must Do Before Applying for a Personal Loan.

1. Check your credit report for errors.

Before you apply for a personal loan online or directly with a lender, you must know what’s on your credit report. That way you can correct any nasty surprises.

You want to make sure you have a healthy credit report and a good credit score, because the higher your credit score and the better your credit history and report, the greater your chances are of getting the low-interest personal loans.

All you need to do is obtain a free credit report. Your free credit report will show:

1. how much you owe;
2. your payment history;
3. the type of credit you have;
4. the number of accounts you have;
5. how long you’ve been using credit.

It’s important to know these things so you can have a plan of action to improve your credit score.

To review your credit report, visit Credit Sesame to get a free credit report and if you find any mistakes such as missed payments on your credit report, address them immediately.

2. Have a good credit score.

Before you apply for a personal loan, you want to make sure you have a high credit score in order to get the best possible rates.

If you have a low credit score, you might want to hold off on applying until you can improve it. One way to improve your credit score quickly is to correct errors on your credit report. You can also pay off credit card debts.

Find out: How to Raise Your Credit Score to 850.

3. See whether you can repay the loan.

Another thing to think about before applying for a loan despite having a good credit score is to know whether you’re able to repay the loan.

When you get a personal loan, you must repay the money within a specific time, usually 1 to 5 years. You also pay interest on the amount you borrow, plus fees and charges.

So you must make sure that you’re able to meet the loan repayments without financial hardship.

Questions you need to ask yourself: is your job stable?

If you’re still thinking about taking a personal loan to pay for something, Upstart might be the right choice for you.

4. Shop around for the best personal loan lenders.

There are several lenders out there to choose for your personal loan. They are traditional banks, credit unions, online loans, Peer-to-Peer sites like Prosper and LendingClub, etc.

The type of lender you choose for your personal loan will have have an impact on how much interest you are going to be charged.

You will need to select a lender that’s likely to provide you the best interest rate.

Traditional banks and credit unions will undoubtedly offer competitive rates. However, non traditional lenders such as online loans from financial institutions provide some of the lowest rate out there.

Also, peer to peer lending provide some of the lowest rate.

The way peer to peer lending works is that people who have money are matched with people who are looking for a personal loan, through an online platform.

These peer to peer lenders, such as Prosper and Lendingclub, will accept borrowers with a credit score as low as 580 or lower.

5. Compare the interest rates of the personal loan.

Personal loans tend to have lower interest rates than credit cards (the average credit card interest rate is usually between 18 to 22%), but the interest rate of a personal loan can still be high comparing to other loans such as student loans.

For example, the average personal loan interest rates can range from 5% to 28%. That of course will depend on how qualified you are as a borrower, the length of the personal loan, the personal loan amount and the lender.

Again, your credit score is probably the biggest factor when it comes to how much interest you are going to be charged on your personal loan. Obviously, the higher your credit score, the lower your interest rate would be.

With that said, even if you have poor credit, you still can get a loan with bad credit or get a loan with no credit.

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Work with the Right Financial Advisor

You can talk to a financial advisor who can review your finances and help you save 100k (whether you need it to pay off debt, to invest, to buy a house, or plan for retirement, saving, etc). Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.

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