Consumer loans are great because you can use them for any reason such as paying a medical bill, getting a new device, debt consolidation, a student loan, or for vacation. The principal amount, as well as the interest, can be paid in installments. This installment can be paid for a long period of 2 to 5 years.
Apart from the fact that the repayment period is long, you don’t have to back up the loan with collateral. Hence, it is regarded as an unsecured loan. Visit https://www.bankrate.com/loans/personal-loans/unsecured-loans-definition/ to find out more about what an unsecured loan is and how they work.
An APR (annual percentage rate) is the name for the interest rate you pay for this loan. The loan average APR is about 9.41%. However, your creditworthiness might affect the interest rate within a 6% to 36% range. Your income, credit score, and even debts are accounted for before your APR is determined.
Steps to Become Eligible a for Personal Loan
To become eligible for this kind of loan, you need to follow some steps. The first of which is to ensure that the loan is suitable for you. Hence, you need to select the right type of credit or kreditt as it is called in Norwegian. Here are the steps to follow:
1. Decide on the amount you need to Borrow
You should know that when you apply for personal credit, you’ll have to pay back not just the principal amount, but also the interest. The only exception is if the card interest is 0% or you pay on time and the interest is not added.
As a result of this, you should not borrow too much money that is not needed to avoid additional interest. In contrast, you should ensure that you don’t borrow an amount that is less than required. Doing that could cause you to opt for a loan that is more expensive.
You should also confirm that you can make the payments required. Therefore, go for a loan that you can afford the interests repayment.
2. Confirm your Credit Scores
The next thing to do is to confirm your credit scores to ascertain your creditworthiness. To get a kreditt forbrukslån (credit consumer loan), you need to have a good credit score. You can make use of credit reporting agencies such as TransUnion, Experian, and Equifax to get your credit reports.
3. Know what Regulation Z says about your Rights
Regulation Z was implemented by the (FRB) Federal Reserve Board in 1968. This, in turn, led to the creation of TILA (Truth in Lending Act). This act was designed for the protection of consumers who make financial transactions to which personal loans belong. The Regulation Z is under the backings of the CFPB (Consumer Financial Protection Bureau).
The part of the regulation that is relevant and important for borrowers is Sections 1026.17 and 1026.18 under Subpart C. These sections mandate creditors to make known the finance charge, APR, total payments, and amount financed for closed-end loans. You should read up on these things to know your legal rights.
4. Decide where you will get the Credit from
You can get this credit from either a banking license or charter institutions or Non-Banking Financial Institutions (NBFIs). The latter include banks or credit unions. On the other hand, NBFIs include insurance companies, online creditors, payday lenders, etc.
Getting a loan from a bank will require a higher qualification standard. Although the bank may be a bit lenient if you have an account with the bank. The same thing goes for credit unions as they cut their members some slack.
5. Confirm your Eligibility
Go to the potential lender websites. You can also reach them via phone call to find out if you are eligible to receive a loan from such a lender. Confirm if a credit score is required that you must have or if an income limit exists. Also, find out if what the credit history minimum length is.
6. Get Prequalified
After discovering the loans that you aren’t eligible for, then you need to focus on those that will give you the credit. A soft inquiry is what some lenders require to preapprove or prequalify individuals. You should know that the preapproval or prequalification doesn’t guarantee that the load will be given to you. It is only an indication that your financial profile matches those that they give loans.
You will have to fill an online form; it’s not a long one. What is required is just your name, the amount you intend to borrow, your income, and your address. The creditor will then carry out a soft credit inquiry, and then they will get back to you. Click here to learn more about a soft inquiry.
7. Check the Details
After you have been prequalified, then you need to also prequalify the creditor/lender. You need to find out the following:
i. APR, Monthly Payment, Loan Term, and Expected Loan Amount: This will allow you to compare it with other loans.
ii. Fees & Penalties: What origination fee is included? Are there any penalties for late payment? You should find out about this.
iii. Interest Type: Find out if the interest type is variable or fixed. Find out the interest rate difference.
iv. Secured or unsecured: Is the credit secured or unsecured? If it is secured, then you should find out the required collateral.
v. Automatic Withdrawal: Willthe monthly repayments be done automatically? Are they be optional or mandatory? If they are optional, will the interest rate be lowered if I choose the automatic withdrawal?
vi. Arbitration: If there is a conflict, can the lender be taken to court?
vii. Prepayment Penalty: Will a penalty payment be paid if the loan is paid early?
viii. Fine Print: Find out if there are things that weren’t talked about.
8. Submit your Application
After you have verified all the above, you can then submit your credit application. You can choose to submit multiple applications. This should be done within a 14 – 30 days. Rate Shopping is the name for this kind of approach. You shouldn’t worry about this as your credit score won’t be really impacted.
You might be asked to submit proof of your income, official ID, Social Security number, housing costs, and debt. After the application is submitted, then wait patiently for the results.
9. Close the Personal Loan
This deals with receiving the kreddit. You should know that the approval, as well as funding, differs from one lender to the other.
In the event that multiple loans are approved, then you should choose the one that you prefer the more. After that, you sign the required paper and then receive the funding. After that, you need to pay back the credit.
In this article, we have discussed the steps that you can take to apply for a personal loan. The steps you need to take include deciding on the amount you will borrow, confirming your credit scores, knowing your rights according to regulation Z, deciding where to get the kreddit, confirming your eligibility, getting prequalified, checking the details of the loan, submitting your application, and closing the loan.