Getting a loan in the US typically begins with assessing your budget and income. If you can pay down debt before applying, it could boost your credit score and help you qualify for a lower interest rate.
Most lenders conduct a hard credit inquiry during the application process, which can temporarily hurt your credit. To limit credit damage, shop around for the best lender. Many offer prequalification that doesn’t impact your credit.
Student Loans
Loans are one of the most popular resources to help pay for college. Students can borrow from federal or private sources, although federal loans usually offer better benefits and borrowing terms. Private loans are offered by banks and other financial institutions and are based on creditworthiness, income, and other factors. Some private lenders allow students to apply with a cosigner, which can improve their approval odds and rates.
To apply for a student loan, you typically visit the lender’s website. You’ll need to provide personal identifying, financial and income information and answer questions about your educational goals and degree program. Private loans often require that you be enrolled on at least a half-time basis, and some have specific rules about which schools qualify. You may also be required to complete loan entrance counseling and sign a Master Promissory Note (MPN).
The first step is determining how much you need to borrow, which your school can help with by calculating your financial aid award. After that, you can compare your options and make a decision about which loan to accept. Once you’ve accepted your loan, you can start making payments. Keep in mind that late or missing payments can negatively impact your credit score and make it harder to get loans in the future.
It’s generally best to borrow as little as possible, and use other sources of funding (such as savings, part-time employment or scholarships) before taking out a loan. If you do decide to take out a loan, be sure you have exhausted all other options for paying for college, including maximizing grants and scholarships. You should also consider student loan consolidation, which can help you manage your monthly payment by extending your repayment period or lowering your interest rate. Before applying, however, evaluate the pros and cons of consolidating your student loans. If you’re planning to combine your loans, make sure all of them are eligible for consolidation. You may be required to submit an application, undergo loan entrance counseling and sign a MPN to consolidate your loans. In some cases, you’ll need to fill out a new FAFSA form to apply for consolidation.
Personal Loans
Personal loans are lump sums of money with a fixed payment that you borrow to finance large purchases, consolidate debt or cover emergencies. The terms of personal loans vary depending on your creditworthiness, income and debt-to-income ratio. Typically, applicants with good credit and a solid income have the best chances of getting approved for a personal loan and qualify for the lowest interest rates. However, it’s possible to get a personal loan even with a fair or bad credit score, though the interest rate might be higher. Before you apply, review your credit report and address any errors or items that could hurt your score. You also might be able to improve your credit by paying down debt and setting up automatic bill payments.
Once you decide on a lender, complete the online loan application. Typically, lenders require verification of your identity and employment to ensure you can afford the loan. This may include a government-issued form of identification and copies of your most recent pay stubs. You also might be asked to provide other documentation, such as proof of residence, a copy of your lease or rental agreement, a utility bill, voter registration card or bank statements showing you’re regularly depositing funds.
After reviewing your application, the lender will send you documents to sign and confirm all the repayment details. Once you’ve signed the loan documents, most lenders will disburse the funds to your bank account within one business day of official approval. Some lenders offer unique perks, such as zero-fee loans or autopay discounts that can save you money over the life of the loan.
Before you apply for a personal loan, compare offers from different lenders to find the best deal. Consider the interest rate, monthly payment and total cost of the loan. You can use a personal loan calculator to calculate estimated costs based on your budget and credit profile. Then, choose a loan term that fits within your budget and makes sense for your financial situation. Generally, longer loan terms result in lower monthly payments but more overall interest than shorter terms.
Auto Loans
Whether you plan to buy a new or used car, getting the right auto loan can save you money and help ensure your vehicle is financed on terms you can afford. Auto loans are available through banks, credit unions, automakers and online lenders that specialize in offering financing to consumers. Before you apply, check your credit scores and budget to see what rate you can qualify for. You may also want to consider trading in your current car or obtaining dealer financing, which could reduce the amount of your loan.
Tip: The application process for an auto loan will require personal and financial documentation, including bank statements and two recent pay stubs. Having these documents ready can help speed up the process. Also, keep in mind that your interest rate and loan term might change after you submit additional documentation. It’s a good idea to ask your lender to explain any changes to your offer so that you can make an informed decision.
Investopedia Explains Auto Loans
There are several ways to finance a car, including buying it outright, getting an auto loan or leasing a vehicle with in-house financing from the dealership (called captive financing). It’s important to shop around for the best rates before you commit to one of these options. To compare rates, you can check with your local banks or credit unions, online lenders that cater to borrowers with bad credit and marketplace sites that allow you to receive multiple offers in one place. If you do decide to apply with multiple lenders, try to do so within a short period of time to minimize the impact on your credit score.
When comparing auto loan offers, be sure to look at the total cost of the car loan. This includes the amount borrowed, the monthly payment and other fees, such as taxes and title. It’s also a good idea to compare the lender’s reputation, minimum credit requirements and service standards. Check out reviews on the Better Business Bureau and other websites, such as Bankrate, to find out what others’ experiences have been like.
Commercial Loans
As the name suggests, commercial loans are designed to support business operations and investments rather than personal needs. As such, they aren’t regulated by the same consumer protection laws that govern personal loan products. Instead, they’re governed by the individual lenders who offer them. This includes traditional banks, online lenders, credit unions and lenders backed by the Small Business Administration (SBA).
When it comes to applying for commercial loans, accuracy and documentation are essential. A thorough, well-organized application will go a long way in helping you avoid delays and possible loan denial. Documents typically include both your personal and business credit history, income projections, cash flow statements and other financial data. You’ll also need to provide a detailed business plan and a detailed explanation of how you will use the funds from the commercial loan.
Lenders may also check for a minimum required credit score, and rates can be either fixed or variable. Generally, lenders will expect a higher minimum credit score for a commercial loan than they would for a personal one. In addition to a high credit score, you’ll need to demonstrate your ability to repay the debt through a stable revenue stream and a history of profitability.
Once you’ve been approved, you’ll receive an offer with the terms of your commercial loan. Pay close attention to the interest rate, repayment period and any fees associated with your commercial loan. Also, make sure you understand whether your commercial loan is assumable. If it’s not, this may affect your options if you decide to sell or merge your company in the future.
Once you’ve accepted the terms of your commercial loan, the lender will process your request and disburse the funds. In most cases, you’ll receive the funds within a week. If you encounter any problems during the funding process, contact your lender immediately. You may be able to work out a solution with the lender or get your money back.
