How to Apply for a Loan

There are many reasons to seek out a loan. Whether you have an unplanned expense, a planned large purchase, or just need extra funding to get you to your next payday, a loan can be a lot of help when you need money now.

First Steps of Your Loan Journey

Working with a lender can be a simple and pleasant experience. They’re there to help you find the best financial options for your specific situation. So always feel free to ask questions until you understand what everything means and what you will be agreeing to repay on the loan.

What Is a Loan?

We’re going to take the mystery out of borrowing. Plain and simple, a loan is when a debtor borrows a particular sum of money from a creditor and agrees to pay it back over a specific period of time with fees and/or interest.

Exploring Loan Options

Personal loans can vary by state in amount of money, term length, and even qualifications. Think about some of the following factors when considering a loan: How much money do you need? For how long? In some cases, what is the funding for? Are you able to repay on time? What is your credit history?

Here are a couple of loan types to consider.

Installment Loan

An Installment Loan is probably what pops into your mind when you think of a typical loan. The borrower gets the full amount of the loan proceeds at the time of loan origination. Then they repay it in regular fixed installments (usually monthly) during the term of the loan.

Auto Loan

An Auto Loan is a type of secured Installment Loan. The vehicle may already be owned by the borrower or the borrower is buying the vehicle that will serve as collateral for the loan. This makes it a secured loan.

Understanding Secured vs. Unsecured Loans

Collateral – This is something of value that a borrower owns or has interest in that they can use to secure their loan. If the loan is not repaid as agreed, the lender has the right to take the collateral as payment for the debt.

Equity – Tiny math lesson … Equity is the value of your collateral MINUS how much you owe on it. So if your car is worth $7000 and you owe $5000, you have $2000 worth of equity.

Secured Loan – This type of debt is secured by collateral. A borrower might get more money with a secured loan than with an unsecured loan. Examples of secured loans are home equity lines of credit, mortgages, and car loans.

Unsecured Loan – An unsecured loan has no collateral. The approval is based on the borrower’s ability to pay and creditworthiness. A personal installment loan or payday loan is an example of an unsecured loan.

Loan Considerations

Make sure you know what you are signing up for with a loan and keep these important details in mind!

• Term Length – This is the amount of time in which you are obligated to repay the loan.
• Repayment Schedule – The amount you owe and your due date are figured out for you in your payment schedule. Make sure to make payments on time.
• Interest Rate & Fees – Interest rates and fees vary by state and lender.
• Requirements – Know what you need to provide to be eligible for the loan.
• Lending Limits – Lenders have minimum and maximum borrowing amounts.

Gearing Up for Loan Applications

You’re getting closer to applying for your loan but let’s check out some important aspects of the application journey.

Credit Score Check

Your credit score is a predictor of your creditworthiness. It goes hand-in-hand with your credit report which shows your payment record.

Gathering Documentation

Before applying, have your government-issued ID, steady source of income, open bank account, and a working phone number ready.

The Loan Application Process

Once you research your possible lenders and make your choice, you’ll need to contact them about an application. You’ll submit the needed documentation and wait for their loan decision.

From Application to Loan: What to Expect After Applying

If approved, choose how you’d like your funds distributed. If you are not approved, you will receive a Notice of Adverse Action.

Good luck with your personal loan adventure!

This information is presented for educational purposes only. It is not intended as legal or financial advice. Please consult with your attorney or financial advisor.