Is It Easy to Qualify For A Personal Loan?
Depending on your credit score and history, personal loans can be one of the easiest ways to borrow money these days. According to NerdWallet, borrowers who have a minimum credit score of 630 can often secure financing. Some lenders may only require a signature from you. However, borrowing from this type of lender could leave you with higher interest rates. But before you get too excited, you will need to do some research to figure out if a personal loan is a good deal for you.
How You Should Use a Personal Loan
Personal loans operate as an unsecured loan with fixed-rate installments. You can usually borrow anywhere from $2,500 to $50,000. However, loan amounts have gone as low as $1,000 and as high as $100,000. With a personal loan, you pay a certain amount every month. The loan also has an end date at which you will pay off the balance. The interest rates will depend on the lender you choose and on your credit history.
Most borrowers use personal loans to consolidate their debts or pay for a one-off expense such as a wedding, a round-the-world trip, or outstanding medical bills. If you need the money to buy a car, a house, or to pay for school, you would be better off with loans that got earmarked for these purposes.
Can You Repay This Loan?
Lenders will look at your credit history, credit score, and other factors such as debt-to-income ratio to determine if you're a creditworthy risk. Once the lender decides that you can back the loan with no problem, they'll decide how much you can borrow at a particular interest rate.
What Your College and Degree Have to Do With Personal Loans
Some lenders take an unorthodox approach to deciding whether a potential borrower is a creditworthy risk. While most lenders will look at your credit score, credit history, and debt-to-income ratio, some take it a bit further by adding your education and career prospects to the factors they consider. Some points in this area that a lender may look at includes your major, GPA, and your current job.
The reason why some lenders look at your education profile is that there is the thought that some career paths are safer in the event of an economic downturn. If the potential borrower has a "safe" job, then they will be better able to pay off their loan. Your actual job title might also tell the lender about your level of risk tolerance and other personality traits that will inform the lender whether the borrower can pay back the debt.
How Much Paperwork Will Be Involved?
Once you give the lender permission, they can retrieve a lot of the required information for your application. These documents may include your tax returns, your W-2s, college transcripts, and bank statements.
If you decide to apply for a personal loan with the local bank with which you do your personal banking, that bank may already know a lot about your financial situation. In these circumstances, they will already have access to much of this information. When choosing potential lenders, always start with your local options as this can make the process easier for you in the end.