5 tips to get approved for a
What you need to know before opening a credit card
It will become more expensive to open a new credit card.
If you need relief from your high interest loans or credit card debt, you may be considering a personal loan. Offered by many banks and credit unions, personal loans allow you to consolidate or refinance your debt into a low-interest loan with one fixed monthly payment.
Although they have some drawbacks — personal loans often have higher interest rates than typical car or mortgage loans — they are a viable option for consumers who have to pay off high-interest debt.
If you have decided to apply for a personal loan, you should try to increase your chances of getting approved. Here are five tips for getting approved for a personal loan for debt consolidation.
1. Choose a type of loan
There are two main types of personal loans: secured and unsecured.
Secured loans require you to provide collateral, such as your home or car, which can be owned by the lender if you don’t pay. These loans have more flexible credit requirements, and you can have lower interest rates and greater borrowing power. However, you are putting your own property at stake.
Unsecured loans do not require any collateral but depend on your creditworthiness and repayment capacity. You’ll need better credit to get approved, and you could end up with a higher interest rate than a secured loan.
Continued: Debt at retirement and after 75 has become the new norm
Continued: You could recoup the cost of your education in less than 3 years if you’re willing to do one thing
Continued: How to start taming your budget-busting bills
2. Know how much you need to borrow
Before applying for a personal loan, know how much you need to borrow. Account for existing debts that you want to consolidate or refinance. You may not need this information immediately, but it will help you determine your needs and avoid asking for an artificially high amount.
It’s time to stop procrastinating with your finances
When it comes to your financial future, procrastination can make things much harder down the line. Here’s how to be confident with your money.
3. Know your credit
Before applying for a personal loan, you need to know your credit status. This means that you need to check both your credit report and your credit score.
Once a year, you can check your credit report for free with all three credit bureaus at AnnualCreditReport.com. Carefully review your report for negative or inaccurate information that could hurt your chances of approval. If you find any errors, you should dispute them and have them removed from your credit report.
It’s also a good idea to check your credit score before applying. You can get two of your free credit scores, updated monthly, at Credit.com. Before applying, you should make every effort to improve your credit score.
If you urgently need debt relief, you may not have time to wait for your credit to improve. Even so, it will be useful to know the state of your credit as it stands.
4. Find the right lender
Not all financial institutions are created equal. Shop around with several lenders, including banks and credit unions. You may need to choose your lender based on which bank is most likely to approve your loan application, but you shouldn’t jump at the first offer. Review the fine print, interest rates and terms of any loans you are considering.
Study: Here’s why most millennials are in debt
A new study shows that millennials are delaying life events because of their debts. Elizabeth Keatinge has more.
5. Create a checklist
Once you’re ready to move forward with your application, create a checklist of all the documents you’ll need. You may need to work with creditors, your employer, and others to put everything together, so give yourself plenty of time. Incomplete applications may result in immediate rejection, so it’s important to make sure you have your ducks in line.
Remember that debt consolidation only makes sense in certain scenarios. Depending on the interest rates you can get and the length of the loan, you might end up paying more for a long-term personal loan, even if the monthly payments are lower. Make sure you understand the total cost of a personal loan versus the total cost of your current debts. For more information, see our article on decide if a personal debt consolidation loan is right for you.
More on Credit.com
Brian Acton is a freelance writer and contributor to Credit.com. Several years ago, while trying to pay off debt and buy a house, Brian became interested in personal finance and credit. Since then, he covers these topics. Brian holds a BA in History from Salisbury University and an MBA from UMUC. He lives in Maryland with his wife and two dogs. More Brian Acton
Americans now have the highest credit card debt ever
Americans’ credit card debt just hit a worrying record of $1.02 trillion, according to the Federal Reserve.