On this page, you’ll find information about:
- Step-by-step guidance on pre-qualify for a personal loan
- The typical credit score needed to qualify for a personal loan
- How taking out a personal loan can impact your credit score
- When it’s better to borrow money through a personal loan compared to using a credit card for a purchase
Deciding whether to get a personal loan is a big deal that can affect your finances. From combining debts to paying for big things, there are lots of reasons to think about it carefully. In this article, we’ll talk about the important things to think about before getting a personal loan. We’ll look at stuff like what you want the loan for, if you can afford the payments, how good your credit is, and other ways to borrow money. By understanding these things, you’ll be better prepared to make smart choices about your money.
Table of Contents
How to get Personal Loan?
You can use personal loans for various purposes, including making large purchases like home renovations, covering emergency expenses such as medical bills, and consolidating and paying off other debts.
Personal loans are unsecured, meaning they don’t require collateral like a down payment for a mortgage or a car for an auto loan, which are secured loans.
A personal loan involves borrowing money from a lender that you repay in fixed amounts or installments over a set period, usually 2 to 7 years. These loans typically range from $1,000 to $100,000, with the average U.S. personal loan being less than $20,000, according to Experian®.
Assess Your Financial Situation:
Evaluate your current financial status, including income, expenses, and existing debt obligations, to determine if taking on additional debt through a personal loan is feasible.Think about your reasons for seeking a personal loan and calculate the amount you’ll require to borrow.
This step is important in the personal loan application process. With borrowing options ranging from $250 to $100,000, determining a specific amount will prevent you from borrowing excessively. Additionally, having this information will aid in narrowing down your options later on, as loan amounts differ among lenders.[1]
Identify Your Financial Goals:
Determine the purpose of the loan and how it aligns with your financial objectives. Whether it’s consolidating debt, funding a major purchase, or covering unexpected expenses, clarify your goals to ensure the loan serves a meaningful purpose.
Explore Alternative Financing Options:
Consider other forms of borrowing, such as credit cards, home equity lines of credit (HELOCs), or personal lines of credit, and compare their terms, interest rates, and repayment options to determine the most suitable option for your needs.
Evaluate Interest Rates and Terms:
Look around at different banks, credit unions, and online lenders to see what kinds of loans they offer. Compare things like how much money they’ll lend you, the interest rates they charge, and any extra fees. Check if there are any requirements you need to meet, like having a certain credit score or income level, or if they only give loans in certain places.
Read reviews and ratings of personal loan lenders to help you decide which ones are the best. While the interest rate is important, most people also care about good customer service and having a good experience overall. They want lenders that give them helpful information and make getting a loan easy, according to J.D. Power.
Evaluate Interest Rates and Terms:
Research different lenders and loan products to compare interest rates, fees, and repayment terms. Understanding the cost of borrowing and the total amount you’ll repay over the loan term is crucial in making an informed decision.
When to apply for personal loan?
There are various reasons why someone might seek a personal loan—perhaps to cover unexpected medical bills or to finance a wedding venue for themselves and their partner. Regardless of the specific need, personal loans can facilitate significant purchases and mark important milestones in life. It’s essential to understand that applying for a personal loan differs from using other forms of credit, like credit cards.
While credit cards offer revolving credit, where your credit resets after each billing cycle, personal loans come with a fixed APR and potentially provide access to more substantial funds than a credit card. Each option has its advantages and disadvantages, so it’s crucial to evaluate which one suits your circumstances best.
Average credit score for your Personal Loan:
Before officially applying for a loan, you can pre-qualify with Chase to compare rates, terms, fees, and estimated payment amounts, all without affecting your credit score. This allows you to assess your options and make an informed decision.A favorable credit score typically results in loan approval and lower annual percentage rates (APRs).
To qualify for a personal loan, it’s advisable to aim for a VantageScore3.0® of at least 660 and a FICO® score around 670. If you’re unsure of your current score, you can easily access it through Chase Credit Journey, which provides a free credit score and detailed credit report along with insights into its implications.
While these average credit scores are generally sufficient for loan approval, bear in mind that lower scores may limit the loan amount available to you. Additionally, it’s important to note that taking out a personal loan can impact your credit score.
How Affect you credit Score?
Applying for a personal loan may become necessary for various reasons, whether it’s to address an emergency situation or to finance a significant purchase. However, you might be curious about how obtaining a personal loan could influence your credit score. In the following sections, we’ll explore both the positive and negative effects that opening a personal loan can have on your credit.
Build your credit :
Opening a personal loan can potentially yield long-term positive effects on your credit score. For instance, adding a new account contributes to your credit mix, which encompasses the various credit card accounts and loans you hold, showcasing your ability to manage multiple lines of credit.
This factor holds significant weight in determining your creditworthiness, constituting about 10% of your FICO score and considered “highly influential” for your VantageScore3.0. Moreover, consistently making timely and full payments towards your personal loan enhances your payment history, another crucial aspect of your credit score evaluation.
Furthermore, obtaining a personal loan increases your total available credit. This, in turn, impacts your credit utilization ratio—the ratio of your balances to your combined credit limits. A lower ratio is beneficial for your credit score. By securing a personal loan, you can effectively enhance your credit utilization ratio by expanding your available credit relative to your total balances.[2]
Does personal Loan down your credit score ?
Yes, initially, there is an impact. When you apply for a personal loan, the lender conducts a hard inquiry (or “hard pull”) to assess your credit and creditworthiness by accessing your credit report. This inquiry helps them determine the appropriate APR for your loan. A hard inquiry typically results in a short-term decrease in your credit score—usually around 5 points. However, you can mitigate this impact by consistently making timely payments.
Conversely, missing payments or failing to pay installments in full can lead to a negative impact on your score. The longer you delay payments, the more severe the consequences, including additional fees and derogatory remarks on your credit report. Depending on the severity of the delinquency and your current credit score, these consequences can cause a significant drop of 100 points or more.
borrow vs charge your credit card
purchase, several factors merit consideration. Firstly, assess whether the purchase exceeds your credit card’s limit. If it does, opting for a personal loan becomes necessary, as your card alone may not suffice to cover the expense.
Furthermore, evaluate whether the purchase offers long-term benefits. Depending on the card’s rewards program and terms, a significant purchase might enable you to earn points or cash back. If you have the means to pay off the balance promptly, using your card could maximize these rewards. However, it’s crucial to note that failing to settle the balance in full may result in higher APRs and additional accrued interest, warranting careful consideration of your financial situation before proceeding.
What factors influence the maximum amount you can borrow with a personal loan?
The maximum amount you can borrow with a personal loan depends on several factors.[5] Lenders consider your credit history, income, and other criteria to determine the specific loan amount you qualify for. Additionally, maximum loan amounts vary among lenders and may be subject to state regulations.But generaly upto $100,000.
How long does it typically take to receive the funds after applying for a personal loan?
The timeline for receiving funds after applying for a personal loan varies depending on the lender’s processes. First, the lender will review and approve your application. Once approved, you’ll need to review and accept the loan agreement. After signing the agreement, you could receive the funds as soon as the next day or within several business days, depending on the lender’s procedures.
How to monitor your Credit Score?
Monitoring your credit score is essential, regardless of whether you opt for a personal loan or make a significant purchase using a credit card. Your financial decisions can influence your credit score, and avoiding missteps is crucial to maintaining a favorable rating. By staying vigilant and observing any fluctuations, you position yourself to attain and sustain a healthy credit score amidst these significant financial choices. Enrolling in Chase Credit Journey® offers free credit monitoring services, empowering you to stay informed about your credit status and make informed decisions.
Make an Informed Decision:
Ultimately, weigh the pros and cons, consider your financial circumstances and goals, and make an informed decision that aligns with your long-term financial well-being. If you decide to proceed with a personal loan, ensure you understand the terms and conditions, and commit to responsible borrowing and timely repayment.
How to Apply for a Personal Loan Through Chase?
Applying for a personal loan:
Many lenders let you apply for a loan online, which is quick and easy. Some traditional banks might need you to apply in person. In either case, you’ll need to give personal and financial details like your name, address, and job info. You might also need to show:
- Your ID
- Proof of where you live
- Documents showing your income, like bank statements or pay stubs
- Tax papers
After you apply, you’ll get a decision soon, either within minutes or a few days. If everything’s good with your application, you’ll hear back faster.
If you’re approved, you’ll review and sign your loan documents. These papers will show details like how much you’re borrowing, the interest rate, and how long you have to pay it back. Once you accept, you should get the money in your bank account within a few days.
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