Before you start sifting through the myriad of unsecured personal loan options online, consider crossing these five items off your to-do list first:
- Build your credit score. Remember, a lender is less likely to offer you an unsecured personal loan if you have a low credit score. They want assurance that you're a financially responsible person who can pay on time, and your credit score is one way to assess that. There are several factors that contribute to a good credit score, with paying debts on time being a major one. And while early repayment on certain term loans might cost you a penalty fee, doing so for a credit card frees up your credit, improves your credit score and potentially lowers your interest rate. So check your credit score, and also get a free copy of your credit report from a credit bureau so that you can have any errors fixed.
- Prepare the necessary documents. Most lenders won't offer an unsecured personal loan without going over their borrowers' financial documents. Aside from your credit report, you should also prepare copies of your most recent payslips, credit card bills and bank statements. You're also likely be asked for proof of identification and proof of residence. Birth certificates, drivers licences, passports, and visas work for the former, while utility bills, mortgage agreements or rental contracts work for the latter.
- Review your lender options.Typically, you'll have four options for lenders – major banks, lesser banks and credit unions, peer-to-peer lenders and other non-bank lenders. Make sure your lender is legitimate, has a solid online presence, fair policies, and decent customer service. Go over reviews online and inquire with friends who've taken out loans at any lenders you're interested in too. Bottom line: you're looking for a lender that is fair, communicates their services well, and values their customers.
- Compare secured personal loans vs unsecured ones. Perhaps you need a higher loan amount with a low interest rate – something that'll get you out of a bind fast, but won't have you struggling to meet monthly repayments. In that case, you might need a secured loan. Try to be flexible when considering your options, and compare secured loans with unsecured loans from different lenders. Don't forget to look into the different rates and fees in each loan too. Compare the interest rate, loan term, and comparison rate among different loans. And don't overlook additional feels like application fees, monthly account-keeping fees, late payment fees and early repayment fees.
- Consider getting pre-approved. A loan pre-approval is an estimate you can request from your lender that helps you get a ballpark figure on the amount you can borrow. The estimate is based on factors like your income and your spending habits, as well as your assets and liabilities. With your pre-approval estimate, you can assess your finances and work out if you're capable of repaying your loan within the terms offered.
