Personal loans are the most popular products offered by banks as well as other private lenders. All banks give out personal loans and there are even online lending services and platforms that have similar financing products. Generally speaking, the popularity of personal loans is a result of how easy it is to get them. While the borrower’s credit rating will matter, an individual’s loan request will be approved even if he has a mediocre credit file.
Furthermore, there are no restrictions when it comes to what can be done with the money. The borrower has complete control. It is also worth mentioning that most personal loans are unsecured, however, lenders will require collateral as part of the agreement if the borrower’s credit rating is too low or if he needs a very large amount of money.
This having been said, as easy as getting a personal loan or even one with no credit check may be, the debt can still be expensive if you submit your loan request without preparing your credit file beforehand. Here is what you should do to get the best possible terms and conditions:
Repay Your Credit Card Debt
Almost everybody owns a credit card nowadays and uses it without restrictions. While using your credit card can help you build up your credit score, over time, it can also reduce your rating before getting a loan. Look at what limit you have on your credit cards and make sure that your credit utilisation ratio does not go over 25%. If you’ve used more than 25% of the total amount of money that is available to you through the credit card, repay some of it until your debt is below this limit.
Having a high credit utilisation ratio will signal lenders that you are unable to manage your personal finances and they may give you a higher interest rate or set a lower limit for how much money you can borrow.
Please keep in mind that you do not have to pay off your entire credit card debt, however, it will make it easier to manage your personal finances when repaying the personal loan.
Consolidate Your Loan Debt
If you already have one or more loans that you are currently repaying, consolidate them to give your credit rating a boost. Furthermore, a debt consolidation loan will also make it easier to repay the debt and reduce its overall cost.
Take into consideration that debt consolidation loans usually require collateral and have very long terms. This makes them serious long-term financial commitments that you should only make if you have a very stable source of income.
Use the Online Tools to Establish Your Interest Rate
Part of the preparation to apply for a personal loan is shopping around to find the best lender. While submitting multiple applications to different banks and lenders will damage your credit score, using the payment calculator apps hosted on their websites is safe.
Doing this will enable you to find and choose the best overall deal, however, keep in mind that you will usually get the base terms and conditions. Once you talk to a bank representative about applying for the loan, it will be possible to negotiate a better deal.
Avoid Taking out Payday Loans or Using Your Credit Cards before Requesting a Loan
Microloans and payday loans can be extremely useful for individuals that are going through a financially difficult time, however, using them too often will reduce your credit rating. This makes it important to refrain from taking out any type of short-term loan prior to sending in your application. In case of an emergency, there are alternatives that you can use, in the form of online lending apps (these do not report the transactions to credit agencies).