4 Tips for Getting a Personal Loan

If you’re looking for a flexible source of financing to help you cover a sudden expense, a personal loan is worth checking out. But before you get too far along in the process, make sure you have a plan.

4 Steps to a Better Loan

When it comes to borrower-friendly terms, personal loans tend to be more favorable debt instruments than other unsecured options, like credit cards. But to get the best possible terms, you’ll want to educate yourself on the various elements lenders use to determine their rates.

With some proactive decision-making on your part, you can get a better loan than you’d otherwise receive without proper planning. Here are some steps to take:

• Maintain Smart Financial Behaviors

There’s no secret formula for getting a personal loan with favorable terms. It all comes down to maintaining smart financial behaviors that prove you’re responsible with your money and likely to repay the balance of the loan.

Lenders will pull your financial history and look at any information they have available. So before applying for a loan, be sure you have all of your ducks in a row.

For starters, lower the amount of debt you currently have to your name. Lenders take your debt-to-income ratio seriously and won’t give you a loan if you’re above their desired threshold (usually somewhere between 30 and 36 percent). And when it comes to the debt you do have, make all of your minimum payments on time.

Transparency is the best rule of thumb. Never try to hide or disguise something. If a lender finds out that you’re being dishonest, they won’t hesitate to deny your application and move on to the next person.

• Check Your Credit Score

There are dozens of metrics lenders use to determine whether to extend you a loan and what interest rate to tack on.

“For instance, a lender might offer a loan with an APR of 5.29% to someone with a credit score of 620. But someone with a credit score around 760 might be able to get a rate of 3.70% on the exact same loan,” Credit Loan explains.

Before applying for a loan, take the time to check your credit score. If you notice a low credit score, it may be worth pulling your credit report to find out what’s holding you back. It’s possible that there could be errors on the report, in which case you’d want to go through the process of having them removed.

• Lower Your Ask

Applicants often overinflate the amount they ask for. They figure they might as well have access to a little extra capital since they’re going through the hassle. But be wary of aiming too high. Bigger amounts may lower your chances of having your application accepted. It’s far more sensible to think in terms of the minimum amount you need. 

• Work With Reputable Lenders

Not all lenders are created equal. If you work with a sleazy lender on the street corner, then expect to get taken advantage of. If you work with a professional lender with a solid track record of satisfied borrowers, then you’ll probably have a similar result.

When it comes to finding a lender, run some searches online – read reviews and customer testimonials. This is the best way to cut through the selling tactics some lenders use to attract applications and to find the honest ones.

Use Common Sense

You could say that personal finance is 10 percent knowledge and 90 percent common sense. While there are certainly times where you need to invest in education and learn the technical elements of how various financial products work, it ultimately comes down to using your head and trusting your gut.

If something seems too good to be true, it probably is. There’s no such thing as free money, and there’s always some element of risk involved in any decision. (Even keeping cash under your mattress brings the risk of a house fire into play.) To get a good loan, you have to take smart steps toward grooming yourself into an attractive loan applicant. It’s not rocket-science or neurosurgery.