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- If you want to apply for a bank loan, the first thing to do is check your credit.
- Next, you will need to find out if your bank offers personal loans. Typically, to get a bank loan, you must be an existing customer with good credit.
- If your bank offers loans, you’ll need to gather your paperwork, clarify the loan terms, and make sure you have a repayment plan.
- If your bank doesn’t offer loans – or even does – you might want to get quotes for comparison from online lenders, who have fewer regulations and can base their offers less on your credit. existing and more on your repayment capacity.
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Whether it’s a personal loan to buy a car, consolidate debt, finance a business, or do home renovations, applying for a personal loan from a bank can be a way to build your credit and pay it off. which you need.
To get a personal loan from a bank, you usually need to be an existing customer with good credit, says Jamie Young, a personal finance expert at Credible, an online loan market.
“If you’re doing business with Chase, Bank of America, or Capital One, you’ll have to look elsewhere – they don’t offer personal loans,” Young explains. “Goldman Sachs Bank offers an online application process through its Marcus brand, and it’s also easy to apply for rates through SunTrust Bank’s online lending division, LightStream. “
Note that banks face more regulations than online lenders, so “as a result, they have the highest lending standards,” says Priyanka Prakash, loan and credit expert at Fundera. “Online lenders are much more flexible. They place less importance on credit and more on your ability to repay a loan. That means income is more important.”
Or, you can use a personal loan market like Credible to request rates from multiple lenders at once.
How to get a bank loan
1. Check your credit score
If you are starting the loan process for the first time, get your credit score first.
You can check it for free anytime on sites like Credit Karma, Credit Sesame, and Credit.com. You don’t need a perfect credit score of 850 to get a loan, but lenders take your credit score as an indication of your reliability as a buyer and adjust their offers accordingly. So the higher your score, the better.
2. If something is wrong, get your credit report
Your credit score is a three-digit shortcut for the information on your credit report, which monitors all of your credit-related activities. According to the Federal Trade Commission, you are entitled to a free copy of your credit report every 12 months from each of the three national credit reporting companies: Experian, Equifax, and TransUnion.
Note that there are many ways you can pay for your credit report, but annualcreditreport.com is the best place to get your report for free (or call 1-877-322-8228). Be prepared to provide your name, address, social security number, and date of birth to verify your identity.
2. Know that loans can actually increase credit scores
If you’re looking to take out a loan to consolidate your credit card debt or to pay off your debt faster, it can help you in more ways than you might think.
“A personal loan to pay off high-interest credit card debt can increase your credit score by lowering your credit utilization rate,” Young says. “This is how close you are to reaching your limits on your credit cards. Try not to use more than 30% of your limit on any card.”
Plus, if you’ve never taken out an installment loan like an auto loan before, adding a personal loan to your credit mix can boost your credit score. “It’s because your credit mix makes up 10% of your credit score,” she says.
3. Understand that there are types of personal loans
There are two types of personal loans: secured and unsecured.
Unsecured loans are not backed by collateral like personal property or a house. A bank assesses whether to grant you the loan based on your financial history and credit rating.
If you don’t qualify for an unsecured loan, lenders also offer secured options, which can be used against assets or accounts you have in the bank, or something more tangible, such as a house or a home. car. Mortgages, home equity loans, and auto loans are considered secured loans because you put up collateral.
Remember, if you take out a secured loan using your house, car, or anything else as collateral, you run the risk of losing everything you got if you become unable to pay your loans.
Most of the lenders who offer unsecured loans, including banks and
, will also offer secured loans.
4. Make sure your bank offers personal loans
As Jamie Young of Credible said above, to get a personal loan from a bank you will usually need to be an existing customer with good credit. Some banks don’t offer personal loans, so you’ll want to know what your bank is offering.
If your bank doesn’t offer loans – or even does – you might want to get quotes from lenders online, who have fewer regulations and can base their offers less on your existing credit and more on your ability. reimbursement. Online lenders can be an alternative to bank loans, or a basis for comparison.
After checking the rates offered by online lenders, see if your bank will give you a better deal.
5. Put your papers in order
One of the most difficult aspects of obtaining a bank loan is the amount of documents required in the process.
“Getting a bank loan can take weeks or even months. The main reason it takes so long is that you have to submit a bunch of documents,” says Prakash of Fundera.
The nature of the paperwork will vary depending on the type of loan you are applying for, but in general you can expect to need:
- pay stubs / proof of income
- the last two years of tax returns
- documentation of 401 (k) s and other financial accounts
- ID photo
- rent / mortgage history
- proof of collateral, if you are looking for a secured loan
It is a good idea to put these basics in order before applying for the loan, in order to speed up the process.
6. Try to be pre-approved
While not a strong collateral, pre-approval occurs when a lender makes an informal offer on a loan, pending full approval.
In this case, the pre-approval will tell the borrower the loan amount, terms and repayment schedule they are likely to be entitled to in advance. In addition, a pre-approval recognizes that the borrower has met the bank’s general eligibility conditions.
The process usually includes an application and a credit history assessment, and while this is an interesting step to take, it does not guarantee that the bank will extend these exact terms when issuing a loan.
7. Know the terms
Personal loans are installment loans, that is, when you borrow a fixed amount of money and pay it back with interest in monthly installments over the life of the loan.
The terms of the loan are in months and can range from 12 to 96 months. When you meet the loan conditions, that loan is considered closed. If you need more money, you must reapply for the loan.
8. Make a plan to pay it back
Once you get your loan, make sure you have a plan to pay it off. How much are you going to owe per month? Are you planning to pay the minimum required, or make additional installments and pay it back faster? When is payment due?
Consider setting up automatic payments from your checking account after your paycheck is cashed, or calendar reminders to make sure you never miss a due date.
“Your payment history is 35% of your credit score,” says Young of Credible. “If you continue to make payments on time and reduce your total debt load, your credit will improve” – and the next time you want to borrow money, it will be easier.