How to Apply for a Consumer Loan
A consumer loan is also known as a personal loan, and may be secured by collateral such as an asset that you own or it may be unsecured. Interest rates on secured loans are lower than unsecured consumer loans, thus you’ll strike a better deal with a lender if you can offer collateral. Personal loans are typically obtained from a bank or a credit union, and can be found online by searching for loan offers. To apply for a consumer loan, you should take the following steps.
1. Visit your bank or credit union. Where you do you banking is a logical first place to look for a loan. You’re already a known quantity with your banker and may receive a slightly lower interest rate on your loan if you have multiple accounts with this financial institution. Pay your banker a visit, obtain loan information including rates, terms and fees, but don’t commit to a loan just yet.
2. Explore your options. Perhaps your accounts are with a big bank and they’re not about to strike a loan deal with you. That’s okay — there are many other places to look for a personal loan including a community bank, your credit union and online. In fact, it can be beneficial for you to find 3-5 financial institutions that write consumer loans. Explain to each lender what you need the funds for and compare like offers. For example, if you need $5,000 to fix a crack in your pool, then say so. In this example, you may want a 36-month loan at an interest rate below 10 percent and with an annual fee of under $100.
3. Know your credit history. It is almost pointless to apply for a personal loan if you have bad credit. Sure, a lender may issue you a bad credit consumer loan, but you’ll pay handsomely for this opportunity if you’re even approved. Visit AnnualCreditReport.com and obtain copies of your three credit reports from Experian, TransUnion and Equifax. These reports are issued free once annually. Inspect each report for accuracy and notify the respective consumer credit bureau about mistakes or outdated information. Obtain your credit score too; you’ll pay a fee for this option. To receive the best loan deal, your credit score should be 750 or higher. You may still qualify for loan if your credit score is below 650, but your loan terms won’t be nearly as good.
4. Apply for just one loan. You may end up talking with five or more lenders, but only apply for a loan once. If you keep applying for a personal loan and get turned down by lender after lender, your credit score will suffer and lenders will wise up that you’re too much of a credit risk. Compare your offers, speak personally with a lending representative and apply for your consumer loan when you’re certain that you’ll be approved. A quality lender will tip you off in advance of your loan application whether you’ll likely be approved for a loan or not.
A consumer loan can be costly and should be avoided when other options have been exhausted. For instance, you may be able to borrow from your 401(k) account or obtain money from a family member or a friend. Going forward, you’ll want to establish and fund a rainy day account, one where you can tap your own funding source without having to pay bank fees.