Yeah, taking personal loan from online lenders is significantly increasing day by day in US as a result of its low and easy requirements compared to traditional local loan lenders like bank and credit union loans.
A personal loan is a sum of money one can borrow from traditional banks, credit union or online lenders to repay back with interest over a fixed period of time usually 2 – 5 years depending on the amount and the type of the lender. Personal loan can be borrowed for many reasons ranging from consolidating high-interest debts, wedding expenses, unexpected medical bills, large purchases, or even school bills to home improvements. Personal loans are usually unsecured; that’s, you don’t need collateral to apply for most personal loans.
1. Consolidation Loan: These are loans taking to unite several high-interest loan debts into just one loan. You can take a loan of high amount to pay off several small loans of high interest rate and then just have only one loan of low interest to repay.
2. Home Improvement Loan: This type of loan may be a good option for people looking to renovate or fix up parts of their building with a borrowed money without actually securing the loan with the building itself or other valuable assets.
3. Wedding Loan: You may want to do your wedding at a fancy location, yeah it is once in a lifetime event and for that reason, you may want to make it a memorable one and this can be pricey, but worry less, there’s actually this type of loan you can turn to. A high amount of money can be taking as a wedding loan which you can repay back relatively small fixed amount of money monthly over a long period.
4. Emergency Loan: Just as the name implies, unexpected things happen sometimes and they need to be sorted. Unexpected medical bills could hit you at the wrong time or a car breakdown when there’s no enough fund to fix it, this type of loan will definitely come to your aid.
5. Student Loan: It might be for yourself or your children, need to pay for the school fees could come before your salary or when the school fee is relatively larger than your salary, Student loan could be helpful to settle the bills and this can be easily fetched from traditional banks or online lenders after providing few documentations.
There is two major type of loan leaders which include: Lender with banking license and those without banking license. As the name implies, no license means no regulation the interest rates are usually higher than the regulated ones.
1. Lenders with Banking License: Banks and Credit Union are the lending institutions with banking license. They are regulated and often have higher qualification standard compared to lenders with no banking license. The major benefit of taking loan from banks and Credit Union is their low interest rates and the fact that they don’t usually come with origination fees. Origination fee is the amount of money you have to pay to cover the cost of processing your loan and to run a credit check. It is usually relatively small, maybe 1% of your loan amount and this varies depending on the lender.
2. Lenders without Banking License: Non-banking Institution Lenders are categorized under this type of loan lenders. This type of lenders includes insurance companies, payday lenders, peer-to-peer lenders and online lenders. They usually charge high interest rate and have less qualification standards or requirements compared to traditional lenders. Their approval rate is higher that banks and credit union which means when banks will reject your loan application because of probably low qualification or required documentations, you have higher chance of been approved on online lenders which fall under lenders without banking license.
It is crucial to know some documentations you will be required to provide while applying for a loan beforehand, as this may quicken the application process and ease the stress of fetching for each document when asked. Although this varies from lenders to lenders, some require additional documentations especially when applying for a relatively large amount of money. The documentations below are the typical documents lenders expect from you in the course of your loan application.
Typically, most lenders require you to provide forms of government-issued identification to prove you are at least 18 years old and a citizen of United States. This precaution also reduces the threat of identity theft and it varies as well depending on the lender borrowing from. Some may require more than two and some require less. Below are typical proof of identity documentations lenders often require:
It is crucial for Lenders to know if the potential borrower can pay their current loan (if there’s any) and as well have the capability of repaying the loan they are applying for. This is only done through assessment of the applicant’s proof of income documentations which include:
They want to know if you are employed, where you are employed and for how long you have been employed. This is part the necessary steps of the loan application process you should expect from a lender. You will be required to provide your employer’s contact information. Note: self-employed applicants often rely on bank statements, income tax returns and 1099s forms.
This is part of the application process which requires the applicant to provide some necessary documentations about their residence either own or rent to the lender which also allow the lender to know about the applicant living situation which helps in approval process. The acceptable documentations to proof your residence include:
These are things you should know and should have done before going ahead to apply for a personal loan especially when applying for the first time. When you are aware of these, it helps to decide the best loan for you and the range of the amount you could be offered and as well speed up the loan approval process. These things include;
1. Your Credit Score: It is important to know your credit score before applying for a loan. Although most lenders typically run a check on your credit score which determine if you are fit to take a loan and you will be able to repay the debt. Credit scores range from 300 to 850 and the average credit score considered as good score for loan application is 600. However, this varies as well depending on the lender. Some lenders approve loans of applicants having less than 600 credit score, others even borrow applicants with no credit history at all (this is rare though). Typically, the higher the credit score, the higher the chances of approval.
2. Origination Fees: Some lenders charge origination fee which they claimed it covers the processing fee and to run a credit score check and closing. Hence, it is crucial to know if the lender you plan to borrow from charges this fee or not.
3. Your DTI Ratio: This is your credit-to-income ratio and is expressed as percentage. Lenders typically use DTI to predict borrower’s ability to make payments on current debt (if there’s any) and the new one. The lower the ratio, the better chances of approval. Hence, make sure your DTI ratio is less than 35%, though some lenders approve applicant with a ratio of up 50%, but for a better chance, put your ratio at 35% or lower. If it is too high, you may want to consider paying off some debts to reduce it.
Having known all these, you can proceed to any suitable online lenders to process your loan application.
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