How to Get Pre-qualified for a Personal Loan?

Everyone comes to a point in their lives when he or she needs a loan. It is impossible to own things without having to borrow money in some way. That may be a mortgage for a house, a loan for a car, or credit cards. These are all basically loans. I know finances can be a difficult subject. Often times, people do not want to talk about money. However, you cannot hide from it. The more you understand about loans and finances, the better you are. Once you know all the information, consumer loan options are not the scary. Keep reading to become more informed about loans and getting pre-qualified for a personal loan.

What Are Personal Loans?

If you think you are interested in obtaining one, it is important first to understand how personal loans work. You probably have a basic understanding, but when it comes to obtaining a loan, the more information you have, the better. Let us start with the basic information. A personal loan is when a lender allows you to borrow money. You then agree to repay the loan with regular, scheduled monthly payments for a set amount of time. The length of time is typically anywhere from three to five years. You are given the money in one lump sum. Most of the time, it is deposited directly into your bank account. Personal loans can be secured or unsecured. Sometimes, you can be pre-qualified for a personal loan.

There are typically fees associated with personal loans. The fees that you might see are an application fee, an origination fee, and an early termination fee. There also may be administrative fees and late fees. Be sure to read the fine print of any documents you sign. The loan documents outline all the fee associated with your loan. Of all the fees, the one you should avoid is an early termination fee. This fee is applied if you choose to pay off your loan early. Not all lenders add on this fee, but some do, so be aware. Lenders make money on a loan when they collect interest from you. If you pay off the loan early, the lender will losses all the money they would get from your interest.

How Can I Get Pre-Qualified?

Now you want to know how to get pre-qualified for a personal loan. I am sure that you would like some magical answer that makes everything simpler. I do not have one for you. The best thing you can do for yourself when it comes to getting pre-qualified for a personal loan is take care of your credit score. Keep your credit score in good shape and you will not have any lending worries. That is honestly the best thing you can do for yourself. You do that by pulling your credit report on a regular basis. You should do it once a year to check for errors. This also allows you to see your credit score, so you know where it is.

Pay your bills on time and in full. Whatever the amount is that you owe, pay it and pay it on time. Reduce the amount of debt that you have. Make sure your debt to income ratio is not off the charts. I know these tips are not setting the world on fire. But, these tried and true ways are the best way to protect your credit score. You can also get some stability in your life, if you do not have it. Do not bounce around from address to address. Make sure you have some stability in your job. I know many millennials try not to stay in one job for a long period of time, but that can hurt your credit.

Pre-qualification Steps for a Personal Loan

Getting prequalified is not a difficult process. Lenders do different things, but here’s are common practice. 

Step 1. Find one or more lenders. You can find a lender here.

Step 2. Give the lender some basic information, which may include contact info and other information

Step 3. Make sure it’s a soft inquiry. The lender can perform a soft credit inquiry (sometimes they will want to do a hard inquiry and this will effect your credit score). Then you can decide if you want the loan.

Why Should I Get Pre-Qualified?

Now you know the terminology, you may be asking yourself why should I get pre-qualified for a personal loan? Well, there are a few good reasons why you should considered getting pre-qualified. One of the obvious ones is that it can help you understand what options are available to you. While it is not a guarantee, it can give you some direction as to which loans you may qualify. This can all happen without any impact to your credit score. As we become more technologically advanced, the tools lenders use to pre-qualify someone are becoming more spot on.

This means that you can have a little more faith in the pre-qualification you receive. As with any potential loan, be sure to read the fine print. You should always know what you are getting yourself into. Be sure that you understand all of the information contained in the contract. You do not want to put yourself in a worse financial position by obtaining a loan that has loop holes. You also do not want to get a loan that you cannot afford to pay back.

What Is The Difference Between Pre-Approved and Pre-Qualified? 

Difference of being Pre-Approved vs. Pre-Qualified for a Personal Loan?

You have probably heard the terms pre-approved and pre-qualified and wonder what in the world is the difference. Well, there is not always a difference. Depending on the lender, some of them use the two terms interchangeably and they mean the same thing. You should make sure that you understand what the lender means by either of those terms if the lender is using them. Do not just think you know, make sure you know. You do not want to go into any loan process with assumptions about how it will work. Ask questions and get the answers you need before you sign a contract.

Typically, either term can mean that a lender has done a soft hit to your credit and done a cursory look at what is on there. One of the major differences between and soft hit and a hard pull is the details that the lender can see. When they have done a soft hit to your credit, it does not impact your credit score and they cannot see all the details that are listed on it. When they do a hard pull of your credit report, they must have your permission and it could impact your credit score slightly. More importantly, they lender can see all the details of the items that are listed on your credit report.

Another thing to keep in mind is just because you have pre-qualified for a loan does not mean you will be approved for that loan. The lender still reserves the right to deny your loan. Make sure you read and understand all of the fine print before you sign any contracts. While it is nice to be pre-qualified for a personal loan, you do not have to be for approval.

If I Am Pre-Qualified, Can I Get A Lower Interest Rate?

So, you may be asking what does getting pre-qualified for a personal loan do for me? The truth is getting pre-qualified for a personal loan in and of itself may not get your a lower interest rate. However, your good credit score that got you pre-qualified for a personal loan may help you get a lower interest rate. Hopefully, you know by now that the lower your interest rate, the less money you pay back for your loan.

You want to get the lowest interest rate that you possibly can. I have mentioned it a few times, but knowing what is on your credit report goes a long way to helping you. Once you know what is there, you can work to do a few things. You can get rid of anything that is incorrect. Working hard to pay off some of your debt and decrease your debt to income ratio is another solution. You can also be prepared to explain the questionable items on your credit report. Sometimes, if you can provide an adequate answer to a lender about something that is on your credit report, that is helpful for you to get a better rate.

What Does My Credit Score Have To Do With Being Pre-Qualified?

Your credit score has everything to do with it. Credit score is one of the major things a lender will use to determine if you should be approved. Your credit score is a history of your payments, what you owe, and how long you have had a credit history. Missed and late payments are the most common reasons for a low credit score. It only takes a few of those before your credit score plummets. The good news is there are steps you can take to improve your credit score.

You credit score can dictate getting or not getting many things in your life, a house, a car, even a job. You want to protect your credit as much as you can. If something does happen and your credit is negatively impacted, there are some things you can do to improve it. The first thing you should do is credit shop. You want to look at your credit report to look for any errors. You should always make sure the negative items that are reported are actually yours. If not, you should dispute them and have them removed.

Make sure you pay all your bills on time. Avoid late and missed payments for they always decrease your credit score. You should also work hard to pay down the debt that you have. Decreasing the amount of debt that you have on your credit report is one of your top priority. You also want to decrease your debt to income ratio to increase your chances of getting approved for a loan. Decreasing your debt can help you get pre-qualified for a personal loan.

Can I Get A Personal Loan With Bad Credit?

Yes, even with bad credit, you can still get a loan. However, it may be a little more difficult to get approved for a loan. First, you should know what your credit score is, so you know where you stand with lenders. When you do not have the best credit, you should shop around for the best loan for you. You could use a loan checker to search the top loan for which you qualify. Another thing you should know about bad credit is that usually means a higher interest rate.

Lenders see those with bad credit as a risk. Sometimes, a lender will not want to give you an unsecured loan and they want you to have collateral. When you have collateral, you are providing some type of property as a promise that you will pay back the loan. If you default on the loan, the property becomes the ownership of the lender. You can also get a co-signer, if your credit is bad. A co-signer promises that you will pay back the loan. If you do not, your co-signer is responsible for paying the loan.

Are There Different Types of Lender?

There are many different types of lenders. The most common lender that has been around forever is a typical bank. There are also credit unions. They are similar to banks, but they tend to be less rigid. Plus, they are more willing to loan money to someone that has bad credit. They are more like a neighborhood bank and want to help people get back on their feet.

Then there are online lenders. It is possible to get a personal loan online with bad credit.  There are some other types of more non-traditional lenders available, also. Also, consider peer to peer lending. There are organizations that are set up online where individuals or investors can loan money to you. Everything goes through the organization. The investor gives the money to the organization and you pay the money back through the organization. Typically, the interest rates are lower than you might find at a traditional bank. They do look at your credit but small marks are not as important to these types of lenders. You can also borrow money from your family and friends. Most of the time, they will let you borrow money with little to no interest.

You can use a third party to set up a loan agreement, so that it all remains legal. You can even borrow money from yourself. If you have a business that is making money, or vice versa and it is your business that needs the money. You can lend yourself the money and pay yourself back with regular payments. The best thing about these types of loans is that you do not need to be pre-qualified for a personal loan.

Are Online Lenders Safe?

Typically, online lenders are safe and you can feel confident when borrowing money from them. However, there are always people looking to scam others, so you need to aware and research any online lender you are considering. The benefits to an online lender is the application form is shorter and the approval time takes much less time. You can typically get an answer in 24 hours. Here on Loanry, you can find reputable lenders and consider applying for a loan with them.You can even put in your information in the form below, and get offers from lenders who would potentially lend you money within seconds.

If you are approved, the money is in your account within 24 hours of approval. Traditional lenders have a lot more paperwork for you to fill out. They always want you to go into the branch and talk to them in person. Online lenders require much less documentation, as well. Many times, online lenders send you letters stating you are pre-qualified for a personal loan. When considering an online lender, you must understand that your interest rate is probably going to be a little higher than if you went to a traditional bank.

What Should I Look For In A Lender?

You know you want to get a personal loan. You would even like to be pre-qualified for a personal loan. But, now you are trying to determine which is the right lender for you. There are some things in which you should look to determine if a lender is right for you. You want to make sure that whichever lender you choose, they give you the money you need.

If you are approved for a loan, but it is for $5,000 than what you need, it is not going to do you much good. You need to find a reliable company that has the backing to give you the money you seek. You need a lender that is flexible. Sometimes, traditional banks are a little too rigid. However, credit unions and online lenders are a little more flexible to whom they will lend money. Lending institutions are governed by federal laws.

Do not take a lender who is going to break the rules!

You do not want a lender that is going to break the rules. However, you do want one that can work with you. You want a lender that has excellent customer service and can be responsive to your needs. You want a lender that is approachable and you can ask any question you have. Someone that will sit and explain the entire loan and processing to you. You do not want to have the fine print hidden.

But take one that is upfront with the details of the loan

You want them to be upfront with the details of the loan. A lender with a solid reputation. You want to feel like you can trust the lender. The last thing you want is to borrow money from a lender that seems to have shady business practices. Doing a little bit of research about the lender goes a long way to help you get the best loan from the best company that will meet your needs.

What Can I Do To Improve My Chances Of Getting A Personal Loan?

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The answer is quite simple, although you may not like it. It should not come as a surprise to you, as I have said before. You need to reduce your current debt and increase your credit score. You need to work hard to repair any damage that you have done to your credit score. It is not always easy. Plus, it takes consistent and hard work. It is possible to improve your credit score. You need to take a look at your credit report and understand what is on there. Look at your late or missed payments. Is that information correct?

If it is not, you need to fix it. Making any corrections you can to the information on your credit report will help you drastically. If you cannot make corrections because all of the information is correct, you can try to contact the lender. Sometimes, if you make good on any late payments, or accounts that are in default, the lender will remove the late payments from your credit report. You must work to pay down your debt and reduce your debt to income ratio. While these things may seem tedious, they all will go a long way to help improve your credit score. This improvement does not happen overnight. It takes consistent effort on your part. But, it is possible to see improvement.

If you begin to correct all of these items, you begin to see your credit score increase. While your credit score increases, the possibility of a lower interest rate increases.

How Can I Use A Personal Loan?

There are many reasons why you might need a personal loan. In reality, you can use a personal loan for anything of your choice. The bank deposits the money directly in your bank account or gives you a check. Even though a personal loan can be used for just about anything, the lender always asks what you intend to do with the loan. There are some typical reasons why people apply for personal loans. A personal loan can be used to consolidate debt. This helps you combine all of your debts, including credit cards, into one payment per month. The keeps your payment each month the same because it is a fixed rate.

Another common reason for a personal loan is to pay for an emergency. It can be a medical emergency, or some other emergency that causes an unexpected expense requiring money fast. You can also use a personal loan to purchase a vehicle. This helps you purchase a car without having to pay for it all at one time. You may also use the money to make improvements to your house that ultimately increase the value of your house. You could use the money to pay for a wedding. Regardless of your reason for getting one, you can always get pre-qualified for a personal loan.

Conclusion

So, now you are pretty certain that you understand the details of being pre-qualified for a personal loan. Now, it is for you to decide if a personal loan is right for you. Just because you can get one, does not mean that you should. You need to make sure that getting a personal loan will help to improve your financial position. Do not put yourself in a worse place financially. You must ask yourself if you can afford to pay back the loan. Yes, it is nice to get a large sum of money directly deposited into your bank account. Remember, you have to pay back that money.

You have to pay it back with regular monthly payments. If you cannot afford those regular monthly payments, then you should not get a loan. Before taking on more debt, you should take a hard look at your current debt situation. You should understand your debt to income ratio and work hard to improve it. Do not forget that you are the only one that can decide if a personal loan is right for you. You need to understand your situation and if you can pay back the loan.

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What Factors Do Lenders Use for Personal Loans?

There comes a time in all of our lives when we need a personal loan. The reasons can vary from fixing a car repair and needing help with rent to unexpected medical expenses. Personal loans go by many different names, from a consumer loan to an unsecured loan and many other names. The different names and all fine print can make it all so confusing. Do not stress too much, just keep reading to find out everything you need to know, including factors lenders, use for personal loans.

Lenders will for sure require proof of identity as well as proof of income. To do this, you need to provide some documents, such as pay stubs, bank statements, tax returns, and even student loan paperwork, if applicable. Keep reading to understand these factors in more depth. We’ve also including videos and more in depth blogs we’ve written on the subject. Here we go into depth on personal lender factors such as income requirements and what exactly a personal loan lender looks at on your credit report. Knowing the game and playing it well could save you a lot on interest and the cost of the loan overall.

What is a Personal Loan?

Personal loans can be a useful tool to help your financial situation. However, if used improperly, they can make your financial outlook even worse. A personal loan is when an institution lends you money that you must pay back. When you pay back the loan, you are making regular monthly payments for a set amount of time. The amount you pay per month does not change. You can use a personal loan for anything you choose.

However, some loans are for specific things, such as a mortgage for a house, or a car loan. There are unsecured and secured loans. An unsecured loan is one that does not have collateral to support your loan. Unsecured loans often have higher interest rates because they are a higher risk for the lender. There are many institutions that offer personal loans, including online lenders. If you decide that a personal loan is for you, you should do some personal loan shopping. A word of caution when it comes to online lenders.

Be sure that any online lender you use is a reputable one. Unfortunately, there are some people out there looking for individuals that are easy to scam. This helps you see what loans are available, as well as insuring you get the best deal.

What do I Need To Obtain a Personal Loan?

If you are considering a personal loan, it is important to knowcredit report lender review the factors lenders use for personal loans. It is also important to understand what information personal loan lenders need from you when you apply for a loan. Lenders need basic information about you when you apply for a personal loan. Believe it or not, the most important thing you need is proof of identification. This is most often the first thing that you forget to bring with you. You have a few options to prove your identity. You can use your driver’s license, a passport, or a military ID. It must have your name and your picture on it. You also may need to provide your social security number.

You should be prepared to be upfront if you have had recent or multiple changes in your address or jobs. Lenders look at frequent changes in these things as a sign that you may not be stable. Being prepared with a valid explanation can go a long way to setting a lender at ease. You may need to provide information about the other bills you have. You should bring documentation about lease agreements, utility bills, and insurance information.

The standard forms of identification are things like…

  • Driver’s License
  • Passport
  • Social Security Card.
  • Military ID
  • Official State ID

What Information Does a Personal Loan Lender Require to Apply?

Income is a Big Factor Lenders Use For a Personal Loan

Almost every personal loan lender, will verify income when taking a loan application. How much income you need when getting a personal loan varies from lender to lender, but mainly based on the loan amount. If you take out a $100,000 personal loan vs a $2600 loan then obviously your total income requirement will change.  Lenders have to have a way to understand what payments you can make against the loan on a monthly basis. A lender will also want to know what other overhead you carry on a monthly basis by reviewing your other monthly payment obligations like rent, cars, other loans, and more.

Lenders will ask for proof of income and expenses. Here is a short list of what you should have prepared if you are looking to get a personal loan:

  • Recent Bank Statements
  • Pay Stubs
  • Tax Returns or W-2s

What Does it Mean if I’m Pre-Qualified or Pre-Approved?

You may have heard the terms pre-qualified and pre-approved. Many times, you receive invitations in the mail, or via email from lenders with those words. It is important to understand what they mean. The terms can be used interchangeably, but they aren’t always. It is important to know that they can be different and engage in a conversation with your preferred lender. These can be important factors lenders use for personal loans.

Pre-qualifying for a loan means that the lender has done a soft hit to your credit. That means that lender has looked at your information, but hasn’t done anything that would impact your credit score. The lender took a quick look at your information and believes that you may qualify for a loan with them. However, this does not guarantee your approval. When you fill out an application and the lender does a hard pull of your credit, you may be denied. A hard pull it a hit to your credit and requires your authorization. The lender is able to see everything on your credit report. At times, you may receive a pre-approval from a mortgage company. This is important when you are trying to buy a home. These often are more of a guarantee of approval.

Why Does My Credit Score or More Importantly What’s on Your Credit Report Matter?

I am sure you know by now that your credit score is one of the factors lenders use for personal loans. Do you have a good understanding of your credit score? Do you know what it means for you? Your credit score is a three-digit number that can dictate many things for you. It can control if you can buy a car, a house, rent an apartment, and sometimes, it can prevent you from getting a job.

Your credit score tells a lender if you should be a loan candidate. Your credit score is something you should work hard to protect. It does not take much for your credit score to decrease. But, it will take a lot of consistent, hard work to get the number to increase. Your credit score reflects your history of making timely payments on money that you have borrowed, or bills that you owe. Typically, late or missed payments are the most common reason that causes your credit score to decrease.

A credit score falls between the range of 350 to 850. Obviously, 850 is an excellent credit score, but anything above 800 is considered excellent. Anything within the range of 670 to 800 is considered good. Most people have a credit score between 600 to 750. When your credit score falls between 580 to 669, it is considered ok, or fair. Anything that is 570 or below is considered poor, or bad. The credit score you need for a personal loan is less about the number in the end. The lower your score typically the more you will pay in interest and the amount you can borrow should be less.

Can a Personal Loan Impact My Credit?

Yes, a personal loan can potentially impact your credit score. A personal loan can positively or negatively impact your credit score. You are really in control of which one happens. If you currently have good credit, your credit may take a small hit when you obtain a personal loan. However, if your credit is in really good shape, it should not impact you too much. As long as you make all of your payments timely and you do not miss any payments, it may cause your score to go up slightly.

It will not cause it to go down. If you have good credit, but you miss payments, or make late payments, that impacts your credit score. It goes down as a result. If you become in default, which means you stop paying your loan, your credit score is heavily impacted. Your credit score goes down.

If you currently have a bad credit score, obtaining a personal loan can help you improve your score. If you make all of your payments timely and pay off your personal loan without any missed payments, your credit score should improve. In some cases, you may not have any credit at all. You have not made any late payments, but you just do not have any credit yet. In those cases, your credit score may be low. Obtaining a personal loan and making timely payments can help you build credit. Keep in mind your credit score is one of the factors lenders use for personal loans.

Can I Get a Personal Loan With Bad Credit?

It is possible to get a personal loan, even if you have bad credit. You may have to do more personal loan shopping to find one. You may ask

Moving with Bad Credit Loan

where to get a loan with bad credit? If you know you have bad credit, you may want to try to obtain a loan from a credit union. Credit unions typically have less stringent rules when it comes to loaning money. They also tend to be a little more forgiving when considering lending money to someone who has a spotty credit history. You could consider finding an online lender.

Often online lenders are more willing to lend money to those with bad credit. Typically, the application process is much faster. You can receive an approval in about 24 hours. Typically, the money is in your bank account within 24 hours of approval. Even with an online lender, the factors lenders use for personal loans remain the same.

Typically, when you have bad credit, you will receive a higher interest rate on your loan. When you receive a loan from a lender, it has interest attached to it. That means that you are paying back more money than you borrowed. An easy example is a loan with a 10 percent interest rate. You borrow $10,000 with an interest rate of 10 percent. That means you owe the lender 10 percent of the $10,000, which is $1,000. You end up paying $11,000 back to the lender over a set period of time. Someone with excellent credit may get a loan at 5 percent, while someone with bank credit, may get a loan with 30 percent interest. If the loan is for $10,000 that is the difference between $500 and $3,000 extra added on to the loan.

What Can I Do To Improve My Credit?

Knowing the factors lenders use for personal loans, it is important to make sure you get your credit in the best shape it can be. When your credit is in bad shape, it is not the end of the world. It is possible to improve your credit, but it will take consistent effort on your part. There are some tried and true ways to improve your credit. The first thing you should do is check your credit report. By looking at your credit report, you know what is on it. Once you know what is on your credit report and verify if it is accurate. Sometimes the information posted to them is wrong and if you know it is wrong, you can make an effort to correct it.

You should attempt to fix your late payments. You can dispute any late payments on your credit report. Even if they might be correct, the lender must provide proof of the missed or late payment. It takes time to gather the information, and they have a short time in which to do it. If they fail to provide the proper documentation timely, the late payment may be removed from your credit report. You could also contact the lender and negotiate payment for the missed or late payment with the lender. Sometimes, if you do this, they agree to remove it from your report.

Can I Really Use a Personal Loan For Anything I Want?

The short answer is yes, you can use a personal loan for anything you choose. You can obtain a personal loan to pay for your wedding or to take the trip of your dreams. You can use a personal loan to do home repairs or pay for medical expenses. Some people use personal loans to pay for unexpected auto repairs or when home appliances break and need replacements. However, that does not always mean that you should. When it comes to factors lenders use for personal loans, they often want to know how you plan to use the loan. This may not be a deciding factor for them, but they always want to know. Deciding to obtain a personal loan should not be a decision that you make lightly. You should put thought into the decision and make sure it is the right one for you.

What If I Need Collateral?

There are many factors lenders use for personal loans and they may decide that you need to secure your loan with collateral. Maybe you are asking what exactly is collateral? Collateral is a piece of property that belongs to you, but you give ownership of it temporarily to the lender. This way, if you default on the loan, the lender has your item which becomes their item. Typically, the lender gives you a certain amount of time to make the loan current. The lender can then sell the item to get some of their money.

This is common with mortgages. If you default on your mortgage, the lender can and will repossess the house. This often occurs with a type of personal loan called a title loan. With a title loan, you are giving the title of your vehicle to the lender. Once the lender verifies how much the vehicle is worth, they offer you a loan in an amount less than what the vehicle is worth. This protects the lender. One benefit of obtaining a loan with collateral is the interest rate is lower. The obvious downside is you could lose some of your property. If you are going to use something for collateral, you should make sure that you are going to pay off the loan on time. Or you better be prepared to lose your property. Make sure you know the factors lenders use for personal loans before you offer collateral.

Are There Any Fees For a Personal Loan?

There are often fees associated with personal loans. It is important that you understand these fees before you sign a contract. You know about interest rates, so you should always make sure you are getting the best one you can. All loan contracts have fine print and loan terms associated with them. Be sure to read all of it. There are two types of loan rates available to you. One is a fixed rate and that means the rate stays the same. This also means that your loan payment remains the same every month for the length of the loan. Variable rates are exactly that, variable. This means they can change, and most likely will. A variable rate changes when the market changes. They typically start lower but can increase. When the rates increase, so do your payments. They could increase many times over the course of your loan.

When it comes to fees, some loans have an origination fee. This fee is to pay for all the paperwork and checks that must be made for your loan. This usually is not a high amount and it gets rolled into your repayment amount. This way you do not have to pay out of pocket before you get the loan for the origination fee. Some loans have an application fee. This is a fee simply for applying for the loan. This is something you have to pay ahead of getting the loan. You also have to pay the application fee if you are approved for the loan, or not. You should avoid a loan with an application fee. An early termination fee occurs when you pay off your loan early. Some lenders charge this fee because by paying off the loan early, they are losing some of the interest. They charge this fee to recoup some of those losses. Be sure to verify your loan does not have an early termination fee. Plenty of loans do not; find one of those kinds of loans.

What Do I Need To Be Aware Of With Personal Loans?

So, you know all the factors lenders use for personal loans. Is that enough? Probably not. Make sure you arm yourself with knowledge when it comes to personal loans. We told you about the fees that may come with your loan. The fees are not the only things for which you should be aware of. A lender may try to sell you on additional loan insurance. The lender may tell you that in the event of your death, this insurance pays off your loan. Your life insurance policy should handle this, as well. They may also offer you unemployment insurance. If you feel that your job is secure, you may not need this.

Do not just blankly believe the lender when they try to sell you on these types of insurances. Ask questions and make sure you really understand what you are getting with the insurance. Also, make sure you need it before you commit to it. Remember, lenders are still salespeople trying to up-sell you. The best thing you can do is educate yourself before obtaining a loan. You know the factors lenders use for personal loans. Some lenders are hoping that you do not know anything at all about loans.

Personal Loan Shopping

Personal Loan Scams…Really?

Yes, really. Be aware that there are people just waiting in the shadows looking for someone desperate. They think people are more vulnerable when they are desperate. But, you do not have to be. Be knowledgable. Know the factors lenders use for personal loans. If something does not feel right, walk away. There are plenty of real lenders available. There are ways to determine if a lender is legitimate. Lenders must be registered in your state to loan you money. Make sure your lender is registered in your state before continuing.

Research any lender you are considering using, especially if it is a short term lending company. Pay attention to phishing attempts. If an offer seems too good to be true, it probably is. Research, research, research any and all lenders. Remember the basic factors lenders use for personal loans. If a lender is promising they do not need any of those things, beware.

Conclusion

So, you think a personal loan is right for you. Before you make the final plunge to get a personal loan and sign the contract, be sure you are sure. You know the factors lenders use for personal loans. This is good information, but it may not be all the information you need. You need to be sure that you can afford to repay the loan. Failure to do so puts you in a worse financial position. If you miss payments, or make late payments, you are doing worse damage to your credit. If you know from the start that you cannot afford to repay the loan, do not do it. Before you get that loan, make sure your budget has room for another bill.

Check your credit report and work on getting it into better shape before taking on more debt. Be sure you are sure. A personal loan can do wonderful things for your credit, if you can afford to repay the loan. Keep in mind the factors lenders use for personal loans. Most importantly, do not put yourself in a worse financial place just to get a little extra money up front. It may not be worth it in the long run. You are the only one who can answer that question.

Loanry

Common Loan Definitions and Related Terms: Lending 101

The Merriam Webster dictionary defines a loan as a temporary lending of money to an individual or organization with an interest rate attached. Of course, while the dictionary makes it sound simple, loans are a little complicated.

An Abridged Dictionary of Loan Terms and Definitions

When you begin looking for a loan, you hear a lot of unfamiliar terms. You need loan definitions. Your lender probably won’t sit down and explain them all to you. We will. This glossary explains loan terminology in the most straightforward manner as possible. It breaks the terms down into categories that reference the context in which you’d read the term.

Loanry does not lend money. We function to help you find a lender. We set up a loan mall so you can easily shop personal loans among many lenders, almost as easily as you could visit a shopping mall to pick up a new pair of jeans. Because of this, we just do not have contact with you; your lender does. So, we want you to understand the loan procedure basics and loan terms. We find it better to educate you and give you the tools. The Loanry team wants you to ultimately save money. If you do decide to borrow then please use our library of personal finance education tools to borrow smart.

We are not trying to frighten you with this huge list of terms, but financial institutions use their own lingo. You will get a much better loan deal if you understand what the lender refers to with each term and know what it will cost you. We’ll break this up into types of loan definitions, for example, explaining fees in one section and references to loan terms in another.

The great news is that once you learn the lingo, it remains the same regardless of the loan type or the type of lending institution you find. Whether you need a student loan or a home loan or a car loan or some other type of loan, these terms apply to every situation.

General Loan Terms 101

Loan Terminology

Let’s start with the loan definitions you will come across regardless of the type of installment loan you consider. You’ll read these terms in all types of loan documentation.

Amortization

This refers to the equal loan payments planned out during a specified period to pay off the debt on time.

Amortized Loan

An installment loan also gets referred to as an amortized loan due to its planned series of equal installment payments that repay the loan amount, plus interest without the need for a balloon payment.

Anniversary Date

The annual anniversary of the loan. The initial anniversary date occurs on the twelfth payment’s due date. Thereafter, it occurs on the same annual date noted on the MOP Promissory Note.

Annual Percentage Rate (APR)

The percentage rate referring to the amount of interest charged on the loan.

Balloon Payment

A final payment to fulfill the promissory note on an installment loan in order to discharge the debt. The balloon payment is typically much larger than the monthly installment payments.

Beneficiary

The lender listed on the promissory note that is secured by a deed of trust.

Borrower

The person eligible for the loan and who carries the primarily responsible for its repayment.

Character

A term that refers to one of the five criteria that lenders use to determine whether to extend a loan to you. Lenders base your character on your credit score and credit history.

Capacity

Five Cs of CreditA term that refers to one of the five criteria that lenders use to determine whether to extend a loan to you. Lenders determine your capacity or ability to repay a loan, based upon your monthly income and your outstanding financial obligations.

Collateral

A term that refers to one of the five criteria that lenders use to determine whether to extend a loan to you. Collateral refers to the property of merit you provide as a guarantee of re-payment when you apply for a secured loan.

Capital

A term that refers to one of the five criteria that lenders use to determine whether to extend a loan to you. Capital refers to your savings or other assets a bank can claim if you default on the loan.

Conditions

A term that refers to one of the five criteria that lenders use to determine whether to extend a loan to you. The conditions of your loan describe how you intend to use the loan.

Curtailment

This refers to an extra payment that reduces the loan’s principal balance before the final balloon payment.

Default

Essentially, failure to repay the loan as specified in the Deed of Trust or Promissory Note.

Demand Note

The term demand note refers to a loan the lender can recall at any time that has no fixed term or repayment schedule.

Friendly Loan

The phrase friendly loan refers to a financial agreement between friends, family, or business associates. These rarely have legal documentation since they are typically verbal agreements. This makes it tough to legally challenge them.

Loan Commitment

The term loan commitment, also called loan approval, refers to the letter issued by the lender that commits to funding for the specified borrower and property. It contains conditions that must be met prior to funding the loan. It expires 60 days from its date of issue.

Loan Denial Letter

A letter from the lender that denies a loan to the specified individual. Depending on the type of loan, the letter may state the denial reason. These reasons may include credit history or score, inadequate monthly income or lack of verifiable liquid assets.

Loan Servicing

The process of operational procedures management and the collection of payments related to a loan.

Loan Underwriting

The process and procedures of risk analysis including loan factors such as credit score and history, assets, employment, etc. used by a lender to determine whether to extend a loan to an individual.

Loan Withdrawal Letter

A letter from the lender acknowledging a borrower’s desire to withdraw their loan application/approval from the lender. It may or may not state the reason for withdrawal.

Home Loan/Mortgage Specific Terms

Some loan definitions only apply to property purchases. These terms apply to home loans, mortgages, investment property, business properties, etc. If you visit Accury, our real estate related partner site, you’ll come across many of these terms.

Appraised Value

The monetary value of a single-family home as determined by an approved appraiser.

Co-signer

A person who assumes loan responsibility, but does not take a title interest or live at the property.

Close of Escrow

The legal meeting at which the property officially and legally transfers between the lender, buyer and seller.

Co-borrower

A second individual who assumes responsibility on a loan. This person also has a title interest in the property, meaning they co-own it, and they intend to occupy it as a primary residence.

Date of Recordation

The date on which a deed of trust is officially entered on the books of the county recorder in the county in which the property is located.

Deed of Trust

Sometimes used instead of a mortgage, this financial security instrument conveys the property’s title in trust to a third party to ensure the payment of the promissory note. When the borrower pays off the loan, the deed transfers to the homeowner.

Down Payment

The initial payment offered for the purchase of a piece of real estate. The loan amount covers the difference between the real estate’s purchase price and the loan amount. While some loan types, such as VA loans, allow for a borrower to forgo a down payment, the typical amount is at least 10 percent of the home’s purchase price.

Equity

Equity refers to the property’s fair market value less the current debt on the property. You can leverage the equity on your property to receive a loan, also called an equity line of credit.

Escrow

In escrow, a third party handles the funds disbursement and paperwork as an agent and intermediary for the buyer and seller.

Escrow holdback

When the home needs repairs or treatment for termites, the firm handling the escrow withholds funds until the repairs or treatment is complete.

Evidence of Insurance

This insurance document confirms the property is insured by a homeowners’ policy. This is not a copy of the insurance policy, but a letter or statement of commitment to insure a specific property beginning on a given date at a specified premium.

Hazard Insurance

This is more commonly referred to as the homeowner’s insurance policy.

Home Improvement

Repairs and/or additions made to better the status of the permanent structure of the primary residence.

Home Loan Coordinator

The person designated by the Chancellor of each campus and Laboratory Director as the Home Loan Coordinator. This individual serves as the primary contact at the campus level for loan applicants.

Homeowners Association

An organization of homeowners residing within a particular development whose major purpose is to maintain and provide community facilities and services for the common enjoyment of the residents.

Homeowner’s Insurance Policy

An insurance policy available to owners of private dwellings that covers the dwelling and contents in the case of fire, wind damage, theft, and, personal liability. The typical policy does not include flood or earthquake coverage.

HUD-1 Closing Statement

A document required by the Department of Housing and Urban Development (HUD) that discloses all financial information related to funds received and disbursed at a loan’s closing.

Inspection Reports

This term refers to reports generated by the inspector the borrower hires to assess the home’s condition before closing on the home. These usually include a home inspection report and a termite report. The home inspection may include specific detailed reports on the condition of the foundation and roof, as well as, a geological report and a septic tank inspection, when a septic system is present.

Interest

Interest has two meanings. The first is a reference to the annual percentage of the loan you will also re-pay in consideration for the loan. The second meaning is also a business term meaning a share, title or right in a property or business.

Joint Tenancy

Joint ownership by two or more persons giving each tenant equal interest and equal rights in the property, including the right of survivorship.

Lender’s Escrow Instructions

Instructions produced by the Office of Loan Programs for an escrow or title company detailing the documentation and procedures required before a loan is funded.

Loan-to-Value (LTV) Ratio

The ratio of the principal balance of a mortgage loan to the value of the securing property, as determined by the purchase price or Appraised Value, whichever is less.

Mortgagee

The lender that holds the Deed of Trust or mortgage.

Mortgagor

The borrower who named on a Deed of Trust or mortgage.

Refinancing

The process of paying off an existing loan and establishing a new loan.

Renovation

The restoration of the primary residence. Generally, this includes repairs, improvements and additions to the permanent structure of the primary residence.

Monetary Transfer Terms

Some loan definitions you need to know, refer to the manner in which loan monies transfer from the lender to the borrower.

Automated Clearinghouse (ACH)

A money transfer network that electronically transmits funds from one participating financial institution to another.

Electronic Funds Transfer (EFT)

Electronic Funds Transfer (EFT) refers to the actual transfer of funds through an ACH. In loan terms, it refers to the transfer of the loan amount electronically from the lender to the borrower. Other EFTs include direct deposit and debit card transactions.

Types of Loan Definitions

You’ll find many types of loans available. Financial institutions specialize. Some offer credit cards, some offer mortgages, some offer unsecured loans and some offer many types of loans. Here are the unusual terms you might come across when exploring loan types.

Bridge Loan

A loan type used in real estate with a loan term of less than 12 months. Considered a temporary loan, the bridge loan provides the borrower the net proceeds from an impending home sale so the borrower can purchase a new home. The borrower repays the loan with the proceeds of the home sale.

Deferred Payment Loan

A loan that defers all monthly interest and principal payments to the promissory note’s maturity date. The loan principal balance, plus the accrued interest comes due when the deferment ends. These are common with student loans.

Graduated Payment Mortgage

You will commonly see this written as GP-MOP. It refers to loan type related to the Mortgage Origination Program (MOP) that provides an initial lower interest rate than the standard rate. There minimum rate is 2.75 percent. The interest rate will annually increase by 0.25 percent to 0.50 percent until it equals the standard rate.

Interest-only Payment Loan

This type of loan does not amortize. During the loan term, the borrower pays only the interest each month. They re-pay the principal as a lump sum when the length or the loan term ends.

Unsecured Loan

This type of loan typically charges higher interest rates but requires no collateral. Credit cards and student loans are the most common types of unsecured loans. This is the most common type of consumer loan.

Fee Definitions

Getting a loan entails much more than the interest rate and the amount of the loan. You’ll incur a number of fees. Here are the definitions for the fees your lender will charge.

Application Fee

A nominal charge, typically of $50 or less, that accompanies the loan application. You pay this fee at each lender, for each loan application submitted. If your loan application gets denied, you will get charged another fee if you re-apply. Some lenders waive the re-application fee if you have good credit.

Administration Fee

You’ll incur the administration fee to process the loan application. This charge ranges between $35 to $50. Some lenders bundle this into the application fee.

Origination Fee

The origination fee typically amounts to about ten percent of the loan. It can be charged in addition to application and administration fees or in addition to them. It is paid from the loan monies, for example, if you apply for a $1,000 loan, you’ll receive $900.

Late Fee

You only incur a late fee if you pay your monthly payment late or miss your payment. These range from $30 to $37. You get charged for each late payment. You may receive one-time forgiveness of this fee, if your lender offers it.

Prepayment Penalty Fee

Your lender counts on making back the cost of loaning you money by charging interest. If you try to pay it off more quickly, by making double payments or large lump sum payments, in addition to your monthly installments, you’ll pay a fee. It is a hefty fee, generally amounting to about 80 percent of six months of interest.

In Conclusion

The plethora of terms and loan definitions can seem overwhelming but we hope this short glossary helps you better understand them. Loanry wants you to find a lender for your financing needs. We try to make it easy for you to find lenders and their loan offers. While we cannot promise you will find a lender here that can get you a loan, we can make it as simple as possible for you to look for the right lender who can help you. We even offer money tools to help you compare different types of lenders.

Our service lists numerous types of personal loan options from a plethora of lenders. These consumer loans include credit cards, installment loans, payday loans, mortgage loans, student loans, car loans, and more with both short-term and long-term options. Our loan mall has lenders who offer high and low-interest rates. You’ll find options for those with great credit, bad credit, and no credit. Print this article or keep it open in a separate browser window while you loan shop. That lets you refer back to it easily. Make your loan search simpler. Start at Loanry and find the lender you need. Loanry connects you with reputable companies that may give you a loan if u qualify for it. You can check whether you qualify right now, by putting in your information below. We do not loan money, but we do make it easier to help find a lender for you.

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