You can use a personal loan for just about any use. Some people apply for a personal loan when they need startup capital for a business or cash for home improvements, weddings and a vacation.
Although many banks and credit unions heavily advertise personal loans, getting a loan is much easier said than done. There is a criteria that you have to meet. For that matter, if you’re looking to get a personal loan in 2014, you need to know what banks require from applicants.
Here are three tips to help you qualify for a personal loan this year.
Improve Your Credit
Some people make the mistake of applying for a personal loan without checking their credit. They may feel optimistic about their approval odds; and then shock when a lender denies their application.
Since personal loans are risky for lenders, banks conduct a thorough financial background check on each person who applies. They’ll examine their employment record, income history and credit history.
To get approved with no hassle, check your credit report before applying for a personal loan, and take steps to raise a low score. Pay your bills on time and pay down high credit card balances.
Know Your Options
You might immediately go to your bank if you need a personal loan. Banks are a common choice and they offer numerous loan options. But if you’re looking to get the best interest rate on your loan, consider a credit union.
Credit unions work just like banks. However, as a non-profit financial institution, there are no shareholders. As a result, credit unions typically offer better financing rates on personal loans and other types of loans, such as auto, mortgage and student loans.
Not that you shouldn’t use a bank —but you need to understand all options available to you. Request a personal loan quote from your bank, and then visit a couple of credit unions in your area and request additional quotes. Once you receive information from both institutions, compare quotes side-by-side (rates and terms).
It’s a tedious task. But if you shop around, you’re more likely to find the cheapest loan rate and save on financing.
Collateral vs. Non-collateral
When applying for a personal loan, you have the option of a secured or an unsecured personal loan. Unsecured personal loans might be a top pick since you don’t have to pledge collateral. Just know that these loans feature higher interest rates, which means you’ll pay more over the life of your loan. Also, to qualify for an unsecured loan, your bank or credit union will likely require a high credit score.
If you do not meet these qualifications, a collateral or secured personal loan is your best option. With this loan, you’ll need to pledge collateral —any personal property equivalent to the loan amount in value. Let’s say you need a $2,000 personal loan. If you pledge jewelry, a car or other property, its value must be at least $2,000.