Personal loans are one of the most versatile financial products available. Most personal loans allow you to do whatever you want with them, from renovating rooms in your home to debt consolidation or paying off an old business loan. However, an experienced loan officer may ask you how you are going to use the funds to help you choose the right type of loan.
Short and pleasant answer
Applying for a loan it’s like starting a new relationship. You should answer each question asked in as much detail as possible (regardless of whether it comes directly from a loan officer or through an online questionnaire). As a loan applicant, it is your responsibility to provide the potential lender with a complete picture of your financial situation. Plus, if you forget to disclose information, or they find out you were dishonest, they are unlikely to approve your loan. In this situation, no one wins.
From the moment you fill out the loan application, the lender tries to find out everything he can about you. This is because things like your credit score and debt to income ratio (DTI) give them an idea of how well you have managed debt in the past and how much debt you currently have in relation to your income. This is what they will find out by ordering a copy of your credit report.
They will also want to know where you work, how long you are there, and how much you earn. Here are the answers you will give. And whether you borrow money from a bank, credit union or online lenderyou may be asked about the purpose of the loan. Your answer does not necessarily affect your chances of loan approval, but as mentioned, a good loan officer can help you choose the loan option that best suits your needs.
For example, some lenders specialize in debt consolidation and can help you understand how a debt consolidation loan works. It makes sense that the lender would like to know that the funds you borrow to pay off your existing debt are being used to pay off the debt (some lenders will even pay off the old debt for you).
Your point of view as a borrower
It’s all about the net profit for a potential borrower. Once you decide to borrow money – for whatever reason – you focus on finding the perfect loan for you. In addition to a loan repayment that you can easily handle, you need a personal loan with:
To get the best loan, you turn to several lenders. And because best private lenders don’t do a tough credit check until you decide to borrow money from them, you don’t have to worry about your credit rating dropping. Instead, you fill out an application and they do a “soft” credit check, which provides a snapshot of your credit history – just enough so they know if they want to make a loan offer.
After collecting several loan offers, compare them with each other. This is what you are looking for:
- Which lender has the lower interest rate? Even half of the annual interest rate affects your monthly payment as well as the amount of interest that you will pay over the term of the loan.
- Which financial institution charges the lowest fees to lenders? It is never worth paying more than necessary.
- Does any of the lenders charge a prepayment penalty? If you are hoping to repay your loan early, there is no reason to work with a lender who will charge you a fee for the benefit.
- Which lender offers a loan term that suits your budget? The faster you can pay off the loan in full, the less interest you will pay. However, you need maturity of a loan to individuals be long enough to make the monthly payment affordable.
- What loan amounts does each lender offer? Any lender who offers a loan to you for the requested amount must be a serious applicant, provided that he offers low interest rate, low (or zero) commissions and no prepayment penalty.
Once you choose a lender, everything else is easy. This lender will hold hard credit check… They may also request additional documentation such as a tax return. Finally, they may have other questions for you. Your only task is to give them answers to their questions.