Understanding How Personal Loans Work

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Everyone needs a little extra money from time to time. There are a variety of ways to borrow needed money, including a home equity loan or a credit card advance, but you might want to consider a personal loan when you find yourself in a position of need. Personal loans are short-term loans and can be used for any purpose, such as consolidation of other debts, purchasing new appliances, or buying a new car. The average personal loan ranges from a few hundred dollars to several thousand dollars. This type of loan is paid in equal installments over a determined number of months or years.

Before You Apply

Before applying for a personal loan, take the time to consider the responsibility that accompanies your choice to borrow money. Financial responsibility dictates you do not borrow more than you can easily pay back. It’s very easy to be tempted to buy something you really don’t need, simply because the cash is available to you.  When you obtain a personal loan, you are obligating your future income to the lender. Each time you are paid you will need to set aside a portion of your monthly payment to be sure the amount owed is available to be paid on the loan’s due date, and this requires self-discipline. When an emergency arises, or you need a new refrigerator right away, a personal loan is the perfect solution. As convenient as it is to have ability to borrow money and pay it back over time, remember it is a privilege. Be sure your payments are made on time, as the lender will be adding all your loan repayment information to your credit report.

When You Apply

Although the application process for a personal loan is less complicated than for other types of loans, there is a certain amount of paperwork that must be completed. Be prepared when you go to apply. You will need the following items to complete your loan application:

  • You will need a photo identification card. A driver’s license, state identification card, and passport are generally accepted documents for establishing identity. Your social security card will also be required.
  • You will need to provide proof of residence. This can be done with a tenant-landlord lease agreement or the mortgage payment statement for your home. If you are a student living on campus, you may be required to provide proof of your campus residence as well as your normal home residence.
  • You will need to provide proof of employment. Be prepared to supply all your current employment information, as well as past jobs for at least three years. The information should include the name, address, and phone number of the company that employs you. Bring your last few pay stubs or electronic transfer deposit statement for the last few weeks.
  • Be prepared to list all debts you currently owe, such as your car payment or furniture payments.

As long as you have good credit and a steady job, you will probably have no difficulty getting a personal loan.