There are times in life when you need a sudden infusion of cash to cater for rising needs. With a low emergency fund reserves and limiting nature of credit cards, unsecured personal loan becomes the next best alternative for such externalities.
Unlike other forms of debt financing, unsecured personal loan guarantees you $5,000 up to $150,000 directly to your checking or savings account.
The money attracts very low interest rates, affordable repayment terms and no collateral. This makes such loans best suited for occasions that call for sudden large expenses like house renovation, paying off mounting debt and securing mortgage down payment.
But, how do you get unsecured personal loan fast and with ease?
Here is a complete step by step guide to take you from checking your credit score, to getting pre-qualified up to the last stage where your unsecured personal loan is approved.
1. Check your credit score
An excellent credit score gets you a better chance to qualify for a personal loan and get the highest amount disbursed to your bank account. You also enjoy the lowest interest rate given most lenders perceive you to be risk averse and therefore good for their business.
And therefore, while seeking unsecured personal loan, it is prudent you access your credit worthiness by checking your credit score for free. Generally, credit scores fall to categories as follows:
- Excellent credit: score 720 and above
- Good credit: score 690 – 719
- Average credit: 630 – 689
- Bad credit: score 300 – 629
If your credit score rating is average or below, you will need to take measures to build it first.
A few months of purposeful credit score building process will see your score move from one level to the next. This process is however very simple, not as hard as many people think it is.
It often involves your credit utilization ratio, timely payments and minimal credit inquiries and how many times you have applied for the new cards in the last 6 months. The fewer the better.
You can also request your free credit report and dispute the errors it may contain which you are likely to get one.
Material errors means an error when corrected, shifts the consumer credit score to the next level.
According to the report by Federal Trade Commission, 21 percent of the Americans discovered a confirmed material error in their credit reports.
This calls for you to check your credit score and credit report regularly and dispute the errors you may find. It is free for most of online credit score report providers.
2. Stabilize your Income
A credit report is a summary of your past financial data. Your income predicts the present and future financial situation. And therefore, in addition to your credit worthiness, a lender will look for other parameters to support your ability to pay for the loan on time. Your income and employment history are a part of this.
For most of the lenders, they will require a proof of sizable income and stable employment history to ascertain your ability to pay. You’ll be asked for the payslip for the past few months up to a year or your employer called to verify your work history.
If your income is unstable, the amount not so encouraging or employment history shaky, your level of risk will be high. You will need to lower your level of risk before applying for unsecured personal loan.
You can also provide a collateral to neutralize your level of risk.
3. Clear most of your Debts
If you have higher debts relative to your income, you chances of qualifying for a cheaper unsecured loan get diminished.
More debt means your debt to income ratio (DTI ratio) is high and so is your risk of not furnishing your loan on time.
You can improve your DTI ratio by:
- Increasing your income by diversifying your income streams, side hustles or getting another high paying job.
- Lowering your debt fast through smart debt payment plans like consolidation.
- Reduce your spending
- You can as well get a new line of credit and make sure you spend below your means.
However, be weary of opening too many credit lines in a short time. It hurts your overall credit score over time.
4. Get pre-qualified for the loan
To this far, you have checked your credit score, your confident with your income and your debt levels are mannagable. It’s therefore time to check what types of loans and interest rates you qualify for. The process of checking for this information is called pre-qualification.
Pre-qualification is a process where your information is checked to ascertain how much money lenders will be willing to give you, on what terms and at what interest rates. It’s done by a credible and qualified lender performs a soft credit check on you (and doesn’t affect your credit score).
In the process of pre-qualifying, you may be asked details like:
- Your Income.
- The amount of active debt you have.
- Personal details like name, phone number and email address.
- The current address of where you live.
- Your education details like level of education, name of the school and what you studied.
- The social security number
- Employment details like name of the employer, address and their phone number.
Often, more details will be required when other parameters are not sufficient to qualify you for a loan right away.
In order to boost your chances of qualifying for (good) unsecured personal loan, you must have above average credit score in addition to modest income ration, work history and low debt to income ration.
5. Shop around for the best deals
Pre-quaification process should be able to get you a number of unsecured personal loan you qualify for upfront. With the guide of an online pre-qualification personel, you should be able to weed out bad loan offers and only remain with a handful of qualified leads.
Filter them according to:
- Amount of loan being offered and if it satisfy your financial need without seeking other alternatives.
- The interest rates charged on the loan (the rate itself and if its fixed or variable)
- The terms of repayment (the amount you should pay monthly and for how many months)
A good loan is the one that balances these 3 aspects in a way that works for you, the borrower.
In addition to this, check local banks and credit unions near you for better terms and offers.
For a long time, credit unions have had a reputation to offer unsecured personal loan at lower interest rates and better terms even to people with bad credit score.
Also, check your local bank (one you use to receive your salary). Chances are high they will offer you better terms owing to the fact that you already have a developed relationship with them. Their willingness to offer better terms are based on the relationship and trust you have built with them over time.
6. Compare the offers with other credit alternatives
Up to this point, you already have a deal you cannot wait to close. But before you move for a closure, it is prudent you compare the offer at hand with other credit alternatives.
Surprisingly, an alternative line of credit may offer better value for your money than the deals you already cannot wait to seal.
7. Add a guarantor
Lenders will deny you a loan if they see you as a high risk individual.
A high risk individual is that with the highest chance to default on the loan and is bad for (banking) business.
If your credit score is wanting, your income low and unstable and your employment history no so admirable, you can still get unsecured personal loan at lower interest rates and better terms if you add a guarantor.
A guarantor will commit to pay for the loan in any case you are not in capacity to do so and therefore removes the risk factor in your loan application process.
8. Have a cosigner
Cosigning concept works the same way as a guarantor.
Unlike a guarantor, a cosigner signs the debt obligation and therefore the lender doesn’t need to take any specific action to request payments from him/her.
While the lender will need to inform the guarantor of the debt being defaulting, a cosigner immediately immediately pays the debt without the need for such measures.
Having a cosigner removes uncertainty on loan payment question. You are therefore guaranteed a larger loan with low interest rates and better terms of payment if your cosigner has an excellent credit score, stable income and low debt to income ration.
9. Think of secured loans
If your credit score is not good, you can still get better loan terms with a secured loan. this type of loan calls for a collateral in form of a car, house, your savings or any other valuable asset in your possession.
However, if it involves your house, home equity loan and line of credit is cheaper than unsecured loan.
10. The zero percent credit cards
This option for those with a good credit score. If you have a good credit score, a credit card with 0% interest (for up to 18 months) is a better option for you.
However, you need to clear the credit card debt before the promotional period ends and interest rates kicks in.
11. Peer to peer lending
Peer to peer lending offers an excellent path for those that have one thing of the other preventing them from securing financing through the main stream channels.
You should however go for companies with reputation of offering low interest rates and has good reviews.
Lending club is one example that has stood the test of time.
12. Find the right lender
After shopping around for the best deal and considering the alternative credit options, you should settle for the right lender.
The right lender is the one that is more convenient, has the lowest cost and better terms based on your credit condition.
In as much as the decision making base is the same (better credit score etc), different companies have different underwriting requirement making it easy for you to qualify for a good loan in one company than the other.
There is always an option for everyone. Whether you have a bad credit, average credit or excellent credit scores. Always keep your eyes open for better offers and opportunities.
- Understand the terms offered to you
Financing is a little complex and details hide in the words of the contract, made complex by wordiness and jargon. The rule of the thumb calls for an individual to be keen. Read the document before appending your signature. Where you don’t understand, always ask questions. And by chance you doubt anything, don’t sign until you are so sure.
As for unsecured personal loans, here are the questions you should ask:
- Do I get penalties for late payments?
- Do I get penalties for prepayments?
- Are there hidden costs I need to be weary of?
- Are the payments reported to the credit bureaus?
- How flexible are the payment terms?
- Are there post signing surprises?
When you are satisfied with the responses for the above questions, you will proceed to the last stage.
- Seek loan approval
At this stage, you must be having one final lender you have settled on. For the purpose of loan approval, most of them will seek the following documents:
- Your identification documents (passport, social security number or state ID)
- The latest address of where you stay (copy of lease agreement or utility bills)
- A proof of income (bank statement or tax form)
- Your bank account (where money will be deposited)
Once these documents are submitted, the lender will run a hard credit check on you before approving the loan.
The approval process may take a few hours to a few days depending on the lender.
Once approved, the money is then deposited to the savings or checking account you provided shortly after.
This is the right process if you want to get unsecured personal loan fast. The whole process will take you a week or less depending on where you seek each services.
An unsecured personal loan can relieve you off debt if you decide to use it to consolidate debt.
You can use it to cover unexpected sudden costs in case your emergency fund reserves is not enough to cater for the expenses.
Weight your options well before signing the dotted lines. Always seek the best deal with the lowest interest rates and better repayment terms.