Appling for an Unsecured Personal Loan: A Step-by-Step Guide

An unsecured personal loan is a loan you obtain that can be used for anything you want, from debt consolidation to buying a new computer. These types of loans are usually available at a fixed interest rate and regular monthly payments. The loans can be as small as $500 or as large as $150,000. Interest rates for unsecured loans typically depend on your credit rating, and while the rates are typically higher than secured loans, they are lower than most credit card interest rates. The amount of your monthly payments will be determined by the interest rate and the repayment term, which can range from 24 to 84 months in most cases.

Step One: Finding a Suitable Lender

While most people probably think of their own bank as a primary source for unsecured personal loans, it is best to shop around. Shopping for a loan can be done online, which makes comparisons very quick and easy to do. When comparing different loan products, you should consider the interest rate as well as less tangible measures like customer service, loan accessibility, and online access to your loan.

Step Two: Will You Qualify?

While good credit is obviously going to make it easier to obtain an unsecured loan of any type, those with less than stellar credit can still obtain funding, although it may be at a higher interest rate or through a financial institution that specializes in servicing those with credit issues. You can improve your odds by reviewing your credit report and repairing any errors, being prepared to explain lapses in good payments, and paying payments on time.

Step Three: The Application

The standard loan application will request information about your current debt, your income, and your assets. While the loans are considered unsecured because there is no specific property attached to the loan, the lender can still attach your assets if you end up not being able to repay the debt. Be sure to complete the application carefully and thoroughly. While it might be tempting to exaggerate your income, you will be required to provide verification, so it's best not to stretch it too far.

Step Four: Choosing a Loan

You can apply for an unsecured loan from more than one lender and give yourself some competitive options for choosing the right loan. Compare offers in terms of annual percentage rate (APR) to determine which loan will cost you less. Make sure that you choose a loan that meets your needs, both in terms of the amount of funding and the timeliness of access to your funds.

Step Five: Borrowing Tips

To save yourself money in interest fees, never borrow more than you need. If you can, use some of the loan to pay down credit debt that is currently at a higher interest rate than your personal loan. Make sure you make all of your loan payments well ahead of the due date each month to build your credit rating. Be smart with the money you borrow by using it for things that will have value over the life of the loan (home improvements, debt consolidation).

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