The loan application process can seem intimidating if you’ve never done it before. You may have heard rumors or stories about how long, difficult and stressful it was for your parents or relatives to apply for a personal loan. But that was then, and this is now. We’re here to answer some common questions about loan applications – and maybe bust a few myths along the way.
How do personal loans work, and what should I expect when I apply?
If you’re thinking of getting a personal loan, you may have questions about requirements and the application process. Check out our list of common questions below and learn more about how to take out a loan. After all, knowledge is power!
1) How difficult is it to get a personal loan?
Years ago, personal loan requirements involved more than just your credit history – banks used to decide to lend to you based on your income, character and even gender. While you no longer need to dress your best and show up at your bank with references, you’ll still need to provide your Social Security number, proof of address and income, and a list of your monthly expenses including outstanding debt.
2) How does my financial situation impact my likelihood of getting a personal loan?
There’s sometimes a perception that personal loans are something that’s only available to people with lots of money. But the truth is that personal loans are available to just about everyone. In fact, many people use personal loans to make large purchases (like cars), pay medical debts or consolidate credit card debt. You can even apply for personal loans online!
3) Will I need collateral to get a personal loan, like a house or car?
Unlike a mortgage or home equity loan, a personal loan is unsecured – meaning you don’t need collateral to apply. Because lenders see unsecured loans as a little more risky, your personal loan may have a higher interest rate than mortgages or other secured loans. However, this trade-off makes sense because personal loans are usually for less money and shorter borrowing periods.
4) When it comes to personal loan requirements, where does your credit score come in?
You might have heard that you’ll be turned down for a loan if your credit score is below a certain threshold. Fortunately, you don’t need to have a perfect 850 score to be considered –those with low credit may be approved for a loan.
Looking at your credit score helps determine the terms and interest rate your lender may give you for your loan. That’s why it’s important to check your credit score before you start applying – and why it’s especially important to contact reporting bureaus if you see errors or fraudulent activity on your report.
5) How do personal loans compare to credit cards? Do personal loans have lower interest rates?
The answer to this question depends on your credit score. People with higher credit scores tend to get a lower interest rate, which could make personal loans better than credit cards if you’re planning to make a large purchase. But the opposite is true as well – those with lower credit scores may find that the interest rate on a personal loan is actually higher than those on a credit card. Weigh both options before making a large purchase to decide which one is best for you.
6) Are personal loan rates and requirements the same wherever I go?
In a word, no. Every lender has their own rates, requirements and terms, so don’t be afraid to shop around. In addition to favorable rates and terms, consider seeking out incentives that can help you save money or simplify the repayment process. For example, Santander gives you an interest rate discount if you set up automatic payments using one of their checking accounts.
7) Should I go to the bank to apply for a personal loan, or should I do it online?
You should do whatever feels right to you. There are lots of online options for personal loans, which is perfect if you want to complete the application process on your own schedule. If you have questions about how to take out a loan and prefer personal guidance, a personal banker at your nearest local branch would be happy to help.
8) If I choose to apply online, how safe is it?
As long as it’s through a reputable lender, applying online is a safe option. Banks work hard to keep your accounts and financial information safe via encryption, two-step authentication and additional security features. Before you apply for a loan online, take some time to research the lender to make sure the site is legitimate. And remember, you can always go to a brick and mortar branch if you have questions.
9) How much money should I apply for? Should I take out a loan for a higher amount if I’m approved for it?
Once you’ve talked with your banker about how to take out a loan, he or she may ask if you’d like to pre-qualify – in other words, they’ll see how your credit profile aligns with their loan process. While this is no guarantee that the loan will be approved, it is an indication that the loan application may meet the basic qualifications. During the pre-qualification, you may find out that you’re able to apply for much more than you need to cover your expenses. It may be tempting to take out the full amount, but you don’t have to. In fact, it’s probably wise not to! Instead, only take out a loan for the money you need to cover your purchase or expense.
10) I have more questions about how to get a loan from the bank. Who should I reach out to?
We’ve tried to cover most of the common questions about personal loans here, but everyone’s situation is a bit different. If you want to learn more about personal loans or have questions about the application process, you can always visit your local bank branch to speak with a personal banker. They’ll help you decide whether a personal loan is right for you.
Santander Bank does not provide financial, tax or legal advice and the information contained in this article does not constitute tax, legal or financial advice. Santander Bank does not make any claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained in this article. Readers should consult their own attorneys or other tax advisors regarding any financial strategies mentioned in this article. These materials are for informational purposes only and do not necessarily reflect the views or endorsement of Santander Bank.
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