Whether you need cash to pay the bills because of the government-mandated shutdown in response to the coronavirus or you want to fund your new business venture, there are a number of ways you can raise money. Unfortunately, the economic downturn due to the shutdowns mean it is hard to sell things for cash, and you’re competing with millions of others begging for donations and crowdfunding. The solution is to take out a personal loan. Let’s learn how to qualify for the lowest personal loan rates possible.
Have Your Documentation in Order Before You Apply
Subprime loans are those that have a high risk and a high interest rate. For the mortgage industry, no income no job loans were called NINJA loans. You might be able to buy a new home, but you might pay 7 to 9 percent interest when everyone else was paying 4 percent. If you’re applying for a personal loan, you’ll pay a similarly high interest rate if you don’t have a pay stub or tax return proving your stated income. This is separate from payday loans that require proof you have a regular job in order to borrow against that stream of income.
Do you have a copy of your driver’s license and/or Social Security card? Has your information changed recently? You may be rejected for a loan if you put down your current mailing address, but it doesn’t match what is listed on your identification. If you don’t look much like your photo, you may be rejected by the lender, too.
Know What You Need Before You Apply
How much money do you need to cover your upcoming expenses? Know how much money you need before you apply for the loan. This is because it will be very hard to be approved for a second loan after you’re approved for the first unsecured loan. Repeated inquiries against your credit report as you try to get additional loans for that remaining 500 dollars could cause your credit score to go down and your interest rates to rise.
On the other hand, you don’t want to make the mistake of requesting an extra 500 to 1000 dollars just because you can. People are prone to spend that money frivolously, whether it is eating out in addition to buying groceries or spending on little splurges after paying for a car repair. Limit what you borrow to what you need for the short term, so that you don’t literally pay for it over the long run at a high interest rate.
It is amazing how many people will do detailed research before buying shoes or a watch but won’t do research before taking out a personal loan. Yet the loan will cost you more than these purchases, especially after you take interest and fees into account. Compare loans by interest rate, not the monthly payment you’ll pay. Use portal websites that make it easy to compare loan terms on the same terms. For example, you can find the lowest loan rates with MatchFinancial. You can even filter out lenders that won’t consider people with fair or bad credit. Then you don’t waste time applying with lenders that would reject your application.
On the other hand, you can’t afford not to spend 20- or 30-minutes researching lenders. This is because you can’t afford to enter your personal information in a website that turns out to belong to scammers. Verifying that it is a legitimate, registered lender’s website protects you from identity theft and fraud.
Take Care with Your Application
Mistakes can cost you dearly when it comes to loan applications. Entering the wrong Social Security Number or birth date will trigger anti-fraud measures, causing your application to be rejected. Incorrectly typing in your address or phone number could prevent the application from being approved, too. Make sure you’ve selected the right state, birth month and every other option controlled via drop down lists. Verify that you’ve filled in every mandatory field. Failure to do so can cause the application to be rejected, while some lenders will add insult to injury by charging you an application fee even as they reject it. Resubmitting the application will result in a hit on your credit report, and that could result in a higher interest rate when the loan is finally approved.
Consider Ways You Could Lower Your Risk Profile
Lenders will base the interest rate on the risk associated with the loan. Unsecured personal loans don’t require you to give a reason for the loan the way business loans do. They don’t require you to have some sort of security for the loan, either. In fact, if lenders ask you to scan a copy of a car or home title to “secure” the loan, this is proof that they’re a scam. Unsecured loans are similar to credit cards in that they assess risk based on your credit score and credit history alone.
If you’re ready to apply for a loan, there’s not much you can do to clean up your credit. There’s no time to pay off little bills or check for past due bills pulling down your credit score. However, you could research whether or not they’d allow you to have a cosigner. How much you borrow relative to your income and current debt load will affect the risk associated with the loan. If you don’t earn a lot of money, borrowing an additional 500 dollars could push you over the 40 percent debt to income ratio that lenders use to determine whether or not you’ll be able to make the payments.
What if you’re taking out a secured loan? This category includes car loans, phone loans and furniture loans. If you miss the payments, they’ll take the item back. You can reduce your risk profile in these cases by putting more money down when you make the purchase. You’ll also reduce the risk by buying a cheaper item and not throwing in all the extras. For example, buy the couch but don’t go for the fake bargain of half of the matching tables and lamps. Don’t add the extended warranty to the car purchase for an additional 50 dollars a month. You’ll be better off keeping the loan amount and the monthly payments as low as possible.