One surprising thing you might be asked about when applying for a personal loan

Wondering how to get a personal loan? These 5 steps are important before you apply.

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Admittedly, it can be a hassle to gather everything you need for a loan application – but on the other hand, personal loans are often one of the quickest loans to get, as you can sometimes get the money in a matter of days. (You can see the personal loan rates you may qualify for here.) However, things will go a lot smoother if you have the paperwork required for a personal loan and know a few other important things to do before you officially apply. (Also, read this guide first to determine who a personal loan might and might not be suitable for.) This will ensure you’re equipped with everything you need to make the application process as smooth as possible.

1. Gather the documentation a personal loan lender may need

Specific items required to determine creditworthiness will vary from lender to lender, but most will require the following:

  1. The loan application (this usually asks for things like name, address, date of birth, social security and other personal information, as well as how much you want to borrow and why);
  2. proof of identity (this may include a passport or driver’s license);
  3. Proof of employer and income (This may include a W2, payslips, bank statements, 1099s, or tax returns); and
  4. proof of address (This may include utility bills or a lease or mortgage statement, proof of insurance for your home, a voter registration card, or a property tax receipt).

This is only a preliminary list, so be prepared to provide more information. That might even include your educational history, says Annie Millerbernd, personal loan expert at NerdWallet, who explains that if a lender asks about it or what you learned in school, they might be trying to understand the earning potential. “However, your level of education is unlikely to outweigh income or creditworthiness,” says Millerbernd.

2. Advance and improve your credit score before applying if necessary

Before applying for a personal loan, check your credit history because, as with most loans, credit history is an important factor in determining the rate you will get, or if you will get the loan at all. People with credit scores in their mid-700s and above generally get the best personal loan terms, says Ted Rossman, senior industry analyst at Bankrate. “You may be able to get a personal loan with a lower credit rating, but especially if you’re below 700 on the FICO scale, your odds get noticeably worse and your interest rate should be significantly higher,” says Rossman. The minimum credit score you likely need to qualify for a personal loan is between 610 and 640, according to Bobby Ritterbeck, president of personal loans at Best Egg. (See what personal loan rates you might qualify for here.)

“Banks typically prefer good or excellent credit on a personal loan application, while a credit union may look at your overall financial picture more than just your credit history. Online lenders tailor their loans to borrowers in different situations, so there are good and bad credit online loans,” says Millerbernd.

As with any loan, the better your credit score, the better your personal loan terms are likely to be. “If you have good credit, you can get a loan with an APR in the single digits. However, if you have bad credit, the APR can climb to 30% or more, which is well above what you would pay on a typical credit card,” said Matt Schulz, chief credit analyst at LendingTree.

3. Understand the other factors personal lenders are looking for – and improve on those as well

“Your credit score isn’t the only thing lenders will consider. The length of your credit history and debt-to-income ratio can also affect your ability to get a personal loan,” says Ritterbeck. To find your DTI, add up your recurring monthly debts, including credit cards, mortgages, car loans, student loans, and more, and divide by your total gross monthly income, which is the amount you earn before taxes, withholding, and expenses.” As a general guide, lenders like to see a DTI of 43% or less. If you can pay off some debt or increase your income, this is a good way to improve that number. (See what personal loan rates you might qualify for here.)

4. Find out whether you can get a secured or unsecured personal loan

Because unsecured personal loans are just that—unsecured debt—you don’t have to risk assets like your home or car as collateral. However, secured personal loans require valuable assets, including investment accounts, real estate, and collectibles, to be used as collateral in case you don’t repay the loan. If you receive a secured personal loan, you must provide proof of ownership that you possess, e.g. B. a paid-off vehicle, jewelry, savings accounts, investments, art and more.

5. Find out if a personal loan is right for you and how to pay it back

Personal loans aren’t for everyone: While they can be an effective tool for debt consolidation or for important projects that you need cash for quickly, they’re not right for discretionary spending. And if you do decide to take out a personal loan, make sure you have a solid plan to pay it off in full and on time.

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