There are lots of reasons you may be thinking about applying for a personal loan. Whether you’re considering borrowing money to pay for unexpected expenses, consolidate debt, supplement reduced income, or just to help with managing your money and building credit, ask yourself these questions first:
Is a personal loan really the right solution for my borrowing needs?Before you consider borrowing money, think about why you need the money and what a personal loan will do for you. If you want to get a personal loan as part of a debt consolidation strategy, then it could be a wise solution if interest rates are lower than that of the existing debt.
If you’re considering applying for a personal loan for home improvements, weigh the costs with how much the improvements will increase the value of your home. If taking out a loan will help you make emergency home repairs or make car repairs so you can get back and forth to work, then borrowing now may be the best route to take.
What is my current credit score, and how will taking out a personal loan affect this?Having a decent credit history is key — before applying for a personal loan, be sure to check your credit. If you’re a OneMain customer, you can check your credit score by logging in to your online account.
Credit scores are determined through a combination of payment history, amounts owed, length of credit history, types of credit used and new credit. Essentially, credit scores reward you for good behavior and penalize you for bad behavior. With that in mind, paying your bills on time can be one of the best ways to maintain and raise your credit score. Conversely, if payments are missed, your credit score could drop.
Some lenders, like OneMain Financial, will allow you to check to see if you’re prequalified for a loan, which won’t impact your credit score at all. If you’d like to learn even more about the importance of credit history and scores, and how to improve yours, take our free Credit Scores & Reports micro-course. It’s a great next step in understanding how taking out a personal loan could affect future financial considerations.
Will I be able to afford the monthly payments?After you’ve gone through your monthly expenses and created a budget, be sure to use a personal loan calculator to get an idea of what you might pay each month and how those payments would fit into your budget.
How much money should I borrow?How much money you should borrow when taking out a personal loan really depends on these three factors:
- The amount it would take to accomplish your goal
- How much you qualify for
- Your lender’s minimum and maximum loan sizes
How can I get the best interest rate?The interest rate lenders offer you for a personal loan is largely based on your credit history, employment and income information, and other debts. The more likely you are to make your payments on time, the less risky you appear to lenders, so you may be more likely to receive a lower interest rate compared to someone who is considered high risk. Learn what makes you creditworthy and also how to improve your chances of getting a low interest rate on a personal loan.1
How long will it take to pay off my personal loan and what happens if I pay it off early?If you decide to apply and are approved for a personal loan, your lender will provide you with the loan terms, such as the interest rate and annual percentage rate (APR), and a schedule of payments. In general, most lenders will offer personal loans with a timeframe of one to five years.
While it may seem like a good idea to pay off your personal loan early, you’ll need to revisit the terms of your loan. Some lenders will charge penalties for early repayment, and you’ll have to compare those penalty fees to the amount you’ll save in interest for paying it off early. At OneMain Financial, we offer personal loans with no prepayment fees.
Are there any fees and do they fit in my budget?Sometimes, personal loans will have an origination fee, which is a one-time, upfront fee that some lenders charge in order to cover the cost of processing your loan.2 Origination fees are typically 1-8% of the total loan amount and are influenced by other factors, such as your credit score and repayment terms.
While not all personal loans have origination fees, it’s important to compare lenders and examine the total cost of the loan. A personal loan with an origination fee may offer a lower interest rate than one without, and therefore, decrease the total cost of the loan. However, before you agree to a loan with an origination fee, be sure that the fee fits into your budget.
What is the difference between an interest rate and annual percentage rate (APR) and how do they impact my personal loan?An interest rate is the cost you will pay each month to borrow the money, expressed as a percentage. It is a percentage of your principal, so the amount you pay in interest correlates with how much you owe on the loan.
An annual percentage rate (APR) reflects the interest rate, as well as any other charges that you may pay, such as an origination fee. The APR is typically higher than your interest rate. Learn more about the difference between APR and interest rates.
Are there different types of personal loans?While personal loans can be used for just about anything, there are two different types of personal loans — secured and unsecured. Depending on your credit history and income, you may be offered one over the other. A secured loan requires you to provide collateral, such as an automobile or other valuable item, while an unsecured loan doesn’t require any collateral. With a secured loan, the lender could take possession of the collateral if you were to default on the loan. However, your interest rate and APR would most likely be lower with a secured loan.
What happens if I’m unable to make my monthly loan payments?Although you had good intentions of making all of your monthly personal loan payments, sometimes, life happens. Whether it’s a job loss or other unexpected hardship that impacted your ability to repay your loan, a personal loan is considered delinquent if a payment is just a few days late. If your payment is delinquent, you may be charged a late fee.
Should your personal loan go into default, it would mean the payment is late by 30-90 days, depending on the terms of your loan. If this happens, you’ll end up owing more money —penalties, fees and interest charges will build up on your account, and your credit will be damaged. However, there’s no need to let it get to this point. As soon as you realize you’ll be unable to make a payment, communicate with your lender to see what options you have, such as making a partial payment, or negotiating a settlement.
If you have a personal loan with OneMain Financial and are having difficulties making payments, please contact your local branch during business hours Monday-Friday. Find your branch phone number by logging in to your online account or using our online branch locator.
What to do before applying for a personal loan
By considering your answers about taking out a personal loan you’ve already taken the first step toward making an informed decision about whether it’s the best choice for you in your present circumstances. Evaluating your financial situation, seriously considering why you need the loan, understanding the process of how to get a personal loan, and assessing your ability to make the monthly payments are all considerations you’ll need to weigh before you apply for a personal loan.
If you decide that taking out a personal loan is the right next step, you’ll want to be prepared for the questions the lender will ask. Typically, when applying for a personal loan, your lender will look into your credit history and character, and will ask the following questions:
- How much money do you need?
- How will you use the money?
- How will you repay the loan?
- Can you put up any collateral?
Even our best-laid plans have a way of being changed by things over which we have no control. Unforeseen circumstances could be the reason you’re considering taking out a personal loan, but they can also affect your ability to repay that loan. By taking a calm, rational evaluation of your financial needs and speaking with a credible lender, you’ll be able to make the best decision for your situation.
This article has been updated from its original publishing on March 5, 2020.
The information in this article is provided for general education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. It is not intended to be and does not constitute financial, legal or any other advice specific to you the user or anyone else. The companies and individuals (other than OneMain Financial’s sponsored partners) referred to in this message are not sponsors of, do not endorse, and are not otherwise affiliated with OneMain Financial.