You probably noticed that many of the lenders we talked about debt consolidation loans to pay off credit cards or other debts.
When thinking about following the same path, there are a few major points to consider. First, make sure you’re actually going to save money when you consolidate your debt.
Interest Rates and Fees
The annual percentage rate (APR), which includes origination fees, should be less than what you currently pay. Also, compare the length of your repayment period. Credit cards are open-ended, but other loans have a term length.
Even if you get a better interest rate, how does the new repayment term stack up to the old one? Will you actually save money if you’re paying on the new loan for several years? The answer to that last question should be yes.
Affordable Monthly Payments
It’s also important to make sure you can afford your new monthly payments, especially if you’re switching from lower minimum payments on your credit card to a new loan.
The last thing you want to do is rack up heavy late fees and hurt your credit because the loan was too tight on your budget. Setting aside an emergency fund can help prevent this from happening.
If you’re short on cash one month because of something unexpected, you have a buffer to keep up with all of your financial obligations. Still, switching from credit card payments to a personal loan can be helpful.
It looks better on your credit report because it’s considered an installment loan rather than revolving credit that is open-ended. You might even see a slight rise in your credit score if you pay off credit card debt with a personal loan.
Each lender has its own specific requirements when it comes time to apply for a personal loan. But you should be ready with some of the basics.
If you’re applying in person at a bank branch, you can simply make copies of everything. When applying for a personal loan online, you’ll need to scan your documents and upload them to the application platform.
Start by gathering your ID (like your driver’s license), social security number, one or two months of bank statements, last year’s tax returns, and proof of income (like a recent pay stub).
There might be other requirements; for example, most lenders have a minimum age of either 18 or 21. You’ll probably need to have had a steady income for the last two years, https://yourloansllc.com/installment-loans-mn/ though some lenders may be more flexible on this requirement.
Email, Bank Account, and Credit Pull
Additionally, you’ll probably need a valid email address, especially when applying online. You’re also likely to need a bank account so that the lender can wire funds to you once you’ve been approved. Finally, just about every lender will pull your credit score.
If you have poor credit or no credit at all, it’s in your best interest to work on building your credit history before applying.
That way you’ll save money on interest and be able to borrow a larger amount of funds if you need to. If you’re in a time-sensitive situation for getting a personal loan, there are still lenders available willing to work with below-average credit scores.
Next Steps to Get Your Personal Loan
Remember, this only results in a soft pull on your credit history, so you don’t have to worry about multiple inquiries affecting your credit scores. After getting three or four offers, compare loan options, including fees, APR, and term length.
Use an online calculator to determine how much each loan will cost you over time. Also, consider how the new loan payment will affect your monthly budget and whether or not you can actually receive the funds by the time you need them.