Are you planning on venturing into something big and wondering how to finance yourself? Personal loans work as a simple step to help you through. Almost 23 million Americans have unsecured personal loans with an average balance of $11,500. While credit cards are popular for making purchases or consolidating debts, personal loans are also widely accepted and used. Advanced technology now allows us to easily and quickly apply for and approve loans.
Knowing and understanding how a personal loan works is important before signing up for one. This might prevent you from borrowing expensive loans and being unable to repay them. Read on to learn more about personal loans.
How Personal Loan Work?
Personal loans come in various forms and can be secured or unsecured. A secured personal loan has collateral or assets that are pledged as security in case you cannot pay back the money. If you fail to make payments, the lender can claim the collateral.
The most common type of personal loan in the U.S. is unsecured loans that don’t require collateral. These loans are usually taken for large expenses, paying off high-interest credit card debt, or managing other financial needs.
Personal loans are deposited in your account as a one-time payment. The money must be repaid over a particular period with fixed interest rates. The period to pay the money can be from 1 to 10 years, but it can differ from lender to lender.
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Preparing for a Personal Loan
Before you take a loan, decide how much you need to borrow. This will determine the interest rate you are offered. After you’ve narrowed down your loan amount, check online platforms for personal loan lenders and get an idea of their rates and terms. Ensure that you meet basic qualifications like maintaining a good credit score, debt-to-income ratio, stable income, and a co-signer if required.
The Application Process
First, know the purpose of taking a loan and stick to it, as applying for a big loan can take time and slow down the process. Before you apply, check your credit score, as a good score can make it easy and quicker to get loan approvals.
Clear all your debts before applying for a personal loan. Look out for lenders and check interest rates at different places. Maintaining a positive rapport with your bank may help speed up the process. Keep all your documents ready to avoid last-minute hassles. Many online lenders offer loans, review and go through their websites before applying for a loan.
Receiving a Personal Loan
Receiving a personal loan in the U.S. typically involves meeting the lender’s eligibility criteria. Compare lenders and loan types to find the best fit for your needs. A good credit history and credit score are crucial for loan approval.
Paying Back a Personal Loan
After completing your application process and getting the loan approved, your money will be deposited within a week. Some lenders sanction them within one or two business days. Keep track of when payments are due, set up automatic payments to make it easier, or mark dates on your calendars. See if you can pay extra every month, even though it’s a small amount, to speed up repayment.
How to Get a Personal Loan?
Certain procedures need to be followed to get a personal loan. Here are some of them.
Pre-qualification
Before applying, lenders usually check for qualifications. You need to be prequalified with a good credit score, maintain a positive credit history, have a stable income, and provide necessary documentation.
Formal Application Process
You can apply for a loan online or in-person. For online applications, visit the lender’s website, complete the application, and upload the required documents. For in-person applications, visit a branch, complete the form, and submit your documents. The lender will review your application, and if you meet the criteria, the loan will be approved and funds deposited into your account.
Another option is to take a loan offline. Visit the bank or branch of the financial firm, get a personal loan application form, and fill in the details. Submit the required documents, including proof of income, identity verification, and address confirmation. The bank will check and verify the documents and look for eligibility. Once you are eligible, the loan amount will be sent to your account.
In the U.S., banks typically process loan applications within a few business days to a week. After reviewing the details, the lender will contact the borrower and provide a decision. If approved, the loan terms and conditions will be outlined. If not approved, the lender will inform the borrower of the reasons for rejection.
Loan Approval and Terms
Approving a loan will take time and differs from provider to provider. Once the loan is approved, you will be offered a fixed or floating interest rate. Floating rates vary based on the changes in the market, whereas fixed rates remain the same.
For your loan to be approved by the bank, you must send them your bank statement, identity and address proof, salary slip, and income tax statement. Maintain a good credit history for easy loan approval. Pay your dues and clear debts at the right time, and review your credit card statements regularly.
You can check the status of your application by rigging up customer care or visiting the bank or their website. Use your personal loan application reference number, mobile number, and DOB. After the financial firm approves your loan, it will be communicated via SMS or email on the registered mobile number.
For a loan to be approved, there are a few steps involved: the Loan application process, discussion with the financial firm/lender, background check and verification by the bank, signing of important and necessary documents, eligibility check, loans sanctioned, and finally, deposit of the money.
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Conclusion
If you want a personal loan, compare prices, interest rates, and fees from many financial firms. Maintain a good credit score, clear your debts, and ensure a favorable debt-to-income ratio, as lenders check these factors for eligibility.
Plan why you need to take a loan well in advance and stick to the plan. Pay your interest and amount on time and clear your loans within the stipulated period. Download the Beem app for financial support.
FAQs
Do personal loans go to your bank account?
The money is usually sent to your bank account when your loan is approved. Submit your bank details so your lender can transfer the money.
Can you spend a personal loan on anything?
There are no restrictions on how you spend your loan money. No matter what the purpose, personal loans are helpful.
How soon do you have to pay back a personal loan?
You need to pay your loans with interest charges. The period for repayment of personal loans can be between two to five years, but some loans can go up to seven years.
