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How to Get an Unsecured Personal Loan

Checking your credit, getting pre-qualified, and comparing credit choices are all steps in the process of getting a personal loan.

A personal loan will help you cover your expenses without breaking the bank if you need funds to consolidate credit card debt, relocate cross-country, or even fund an adoption.

The majority of personal loans are unsecured, which means they don't need any kind of collateral, such as a home or vehicle. 

Loan amounts vary from $1,000 to $50,000, and repayment is made in fixed installments for two to five years. Rates and terms can differ depending on your credit score.

1. Check your credit score

You have a great chance of applying for a personal loan and having a lower interest rate if you have a good credit score. 

Check your free credit score to see how creditworthy you are. In general, scores are divided into the following groups:

  • 720 and higher: Excellent credit
  • 690-719: Good credit
  • 630-689: Fair or average credit
  • 300-629: Bad credit

Are you dealing with a less-than-pleasant score? Take action to improve it before applying. On-time payments and the amount of credit you use in relation to credit limits are the two most important variables that impact your credit score. And if you have to, make a fuss — you can get a free credit report and challenge any mistakes on it.

2. Compare estimated rates

Knowing your credit score will help you estimate the interest rate and monthly payment rates you'll pay on a personal loan. To get an estimate, use the calculator below.

3. Get pre-qualified for a loan

Pre-qualifying for a loan gives you an idea of the types of loan deals you may get. Many online lenders conduct a soft credit check during pre-qualification that has no impact on your credit score, so doing so ahead of time is a win-win situation.

You may be asked for the following details during the pre-qualification process:

  • Social Security number.
  • Monthly debt obligations (rent, student loans, etc.).
  • Income.
  • Employer’s name, work address and phone number.
  • Address, email, phone number.
  • Previous addresses.
  • Date of birth.
  • Mother’s maiden name.
  • College name and major.

Pre-qualification for a loan is not possible. Among the reasons for denial, in addition to a poor credit score, are:

  • Too little income.
  • Little or no work history.
  • A high debt-to-income ratio; above 40% may be considered risky.

4. Shop around for personal loans

Online lenders, banks, and credit unions all sell unsecured loans. To get the best loan deal, compare your pre-qualified deals to loan amounts, monthly payments, and interest rates from other forms of lenders.

Credit unions, particularly for borrowers with bad credit, can offer lower interest rates and more flexible terms. They're still your best bet for a small loan of less than $2,500.

Unsecured personal loans are available from a select group of large financial institutions, including Citibank, Discover, and Wells Fargo. A local community bank can offer better rates, especially if you already have a relationship with them.

5. Compare your offers with other credit options

Before you choose a personal loan:

See if you qualify for a 0% credit card. If you have good credit, you would usually get a credit card with no interest on transactions for a year or more if you have good credit. A credit card is the cheapest choice if you can repay the loan within the time frame.

Consider a secured loan. With a secured loan, you might be able to get a decent interest rate if your credit isn't perfect. 

Collateral, such as a car or a savings account, would be needed. A home equity loan or line of credit may be considerably less expensive than an unsecured loan if you buy a home.

Add a co-signer. Borrowers who may not qualify for a loan on their own will be able to get a co-signed personal loan. When authorizing a loan, the lender considers the borrower's and co-credit signer's histories and wages, and can give more favorable terms.

6. Read the fine print

Read the terms of the loan deals to get answers to your questions, as you would for any financing. Keep an eye out for the following:

Prepayment penalties. Most online lenders do not charge a prepayment penalty or exit fee if you pay off your loan early.

Automatic withdrawals. To prevent overdraft fees, set up a low balance warning with your bank if a lender needs payments to be immediately deducted from your checking account.

APR surprises. The total cost of your loan, including any origination fees, should be clearly disclosed and figured into the annual percentage rate.

Often search for the following consumer-friendly features:

Payments are reported to credit bureaus. If the lender reports on-time payments to credit reporting agencies, the credit score improves.

Flexible payment features. Some lenders offer you the option of choosing your payment due date, forgiving a late fee on occasion, or allowing you to miss a payment in the event of financial hardship.

Direct payment to creditors. Some lenders will send lent funds directly to creditors, which is particularly advantageous for debt consolidation borrowers.

7. Final approval

To officially apply for a loan, you'll need to include the following documentation once you've found a lender that meets your needs:

Identification: passport, driver’s license, state ID or Social Security card Verification of address: utility bills or copy of lease 

Proof of income: W-2 forms, pay stubs, bank statements or tax returns

The lender will perform a hard credit check, which may result in a few points being deducted from your credit scores. You'll get your funds according to the lender's terms after final approval, which is usually within a week.

Taking out a personal loan will help you pay off debt and cover unforeseen expenses, but weigh your options carefully before making a decision. Find the best deals, borrow just what you need, and pay your bills on time.

Too many recent credit inquiries, such as credit card applications.

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