Unsecured loans from banks, credit unions, and other private financiers allow borrowers to get an amount that ranges from a thousand dollars to $50,000 that they can use for any purchases. These amounts are paid back within 1 to 5 years and don’t need collateral.
Wise usage of these financial tools will have significant improvements in your life. You can use it to pay off high-interest credit cards, consolidate your other liabilities, and reduce your overall debt. In turn, you can also improve your credit score and become more trustworthy in the eyes of lenders. Other people may use them for renovations, so that they can sell their homes at a higher price.
Since the financing companies face more risk by letting borrowers get unsecured debt, they may increase their interest rates to minimize their losses. If you want more affordable options, you may want to consider the unsecured kredittlån that doesn’t need you to put up your house, car, retirement account, or certificates of deposits as collateral. These assets are what the financiers can seize when you default on the payments.
Requirements for Getting Consumer Loans
- History and Credit Score
Financiers will check your reports and your history of borrowing to see if you’re creditworthy. Payments on time, not many debts, and a qualifying score of 600 are just some of the things that you can expect them to properly assess. If you have a long credit history with them and you’re always paying your loans, then the application may be shorter. However, it can be challenging if you’re still new to the field and you haven’t built up a credit yet.
- Earnings
Income, business revenues, tax returns, and pay stubs will prove to the lenders that you’re capable of repaying the amount owed. These minimum requirements may vary from one lender to another. Private financing companies and online aggregate sites may require consumers to have at least a $45,000 minimum annual salary, while others are fine with $20,000 or less.
Disclosures of the minimum income required are rarely posted so as not to discourage many individuals from applying. You’ll just receive a letter saying that your application was approved. As long as you’re able to submit evidence that you’re receiving an adequate amount of income through your bank deposits and employment certificates, you’re good to go.
- DTI
Borrowers who are saddled with debts are not looking too promising and the debt-to-income ratio is going to represent a huge portion of the monthly income that can be spared to pay for the debt. Various lenders are going to use this ratio as a basis for qualifying their new borrowers and they’ll see if they can afford the amount being requested in the first place.
Ideally, you’ll have to keep things low, which should be around 36% if you want to borrow a large lump sum amount. For highly-qualified individuals, that’s no problem at all because they can still get the funds that they need even if their current DTI is 50%.
- Assets Put Up as Collateral
Application for a secured consumer loan is generally seen as cheaper. However, you’ll have to pledge an asset like a car or home that’s related to the purpose of fund usage. Cashing out on your home equity is possible, but know that in the event of non-payment, the financiers can seize your asset in a heartbeat.
Collateral can be in the form of precious metals, real estate, cash accounts, deposits, or investment accounts, and expect the underwriter to look at the value of each of them before you get an offer from them. If you’re not able to repay everything, repossession can occur to recoup your remaining balance. On the other hand, your asset will give you a lower monthly payment and a cheaper annual percentage rate without a hitch.
- Origination Fees
Loans have hidden costs that many people find surprising. Although not a part of the qualification process, you have to pay various processing and origination fees at the start of the application. Closing costs, the expense of running a credit check, and other transactions can go from 1% to 5% of the loan amount. See more about the closing costs at this link here.
Generally, the financiers may collect these extras at closing and will be deducted from your loan amount, while some may prefer to add them to your monthly payments.
What are the Required Documents?
Application Form
Fill up a form from the financier’s website and submit it to begin the application process. Each lending company has its requirements and information needed from the borrowers. Usually, you need to key in your name, address, the amount you need, credit rating, etc. Formats may also be different where you can complete the entire process on an app, or you’re required to visit the nearest branch for further in-person interviews.
Valid IDs
You need to provide proof of your identity, like your birth certificate, passport, driver’s license, and other state-issued IDs when applying. This will ascertain the financing companies that you’re at least 18 years old, a citizen of their country, and have a valid address. Additional requirements may be requested if there’s a history of identity theft or fraud under your name.
Income Verification
Since you have to prove your ability to repay the loan amount, you need to provide your current earnings and employment history throughout the process. Provide the contact information of your employer as well as bank statements. Self-employed individuals and business owners should have income tax returns where their earnings are stated and seen.
Address
Aside from confirming that you’re currently employed and receiving regular paychecks, most banks or credit unions will need to know if you have a stable living situation. This means that you’re not always relocating to a different state each year, and you’re the owner of your home. Present a copy of your mortgage, recent utilities, voter’s registration, copy of your lease agreement, and other paperwork where your address is visible.
Qualifications
There’s no one-size-fits-all when applying for a loan. You can suddenly get a text or email notification that you’re eligible for an offer even if you haven’t applied. This is common when you have a long-term relationship with a bank or financial institution, and it’s still up to you if you’re going to accept the loan.
For those who want to have more favorable terms, getting options from online lending institutions may be the best solution. Streamlined processes are available especially if you need the funds within the day.
