You might ask yourself: Is getting a personal loan worth it in a time of crisis?
The short answer is yes—getting a personal loan can help you get through tough times. This can act as a lifeline or a safety net in times when you need that financial boost. You can also use it also for big purchases such as emergencies, credit card bills payment, education, travel, wedding, and many more.
Applying for a personal loan is quite easy nowadays, especially that you can apply online and with many low-interest options. However, approval depends on factors such as income and credit score. Banks and other lending institutions will mainly focus on your capacity to pay.
Before you dive in and apply for a personal loan, make sure you’re ready so your loan application will be smooth. To make things easier for you, we prepared a guide on how you can apply for a personal loan. Read more below:
Understand what a personal loan is
Before you apply, you need to understand what a personal loan is so you know what you are getting.
A personal loan is different from a credit product because it’s an installment loan. This means you pay fixed-amount installments over a set period of time until the debt is completely repaid. While you get a mortgage loan to pay for a house and an auto loan to finance a car purchase, a personal loan can be used for a variety of purposes.
If you’re just getting started, it’s important to know the usual terms used in a loan. Here are the common terms:
Principal – This is the amount you borrow.
Interest – The fee or charge for borrowing. It is usually in percentage.
Term – The number of months you have to repay the loan.
Monthly payment – The amount you have to pay every month to the lender. This payment contains the principal amount you owe as well as a portion of the total interest.
Decide how much you will borrow
Now, where are you going to use a personal loan, and how much you will need? Are you going to use it for a big event such as a wedding or celebrating the first birthday of your child? Are you going to need it to finance your Master’s Degree? Or are you going to need it for life’s biggest emergencies? You can use it almost at anything. Then, calculate the amount you’re going to borrow.
Assess your credit score
Your credit score is vital in determining your loan eligibility. Your credit score can either cost or save you a lot of money. A high credit score can land you lower interest rates, meaning you will pay less for any amount you borrow. Meanwhile, a low credit score can cost you more due to higher interest rates and shorter terms. You can still borrow but it will most likely be at a higher interest rate and within a shorter term.
Find an offer that suits your budget
Check various options within different lenders or banks, choose an offer that will fit your budget, and most importantly what’s convenient for you. Choose a loan that you can apply online so you don’t need to go to the branch that often. Pick the best when it comes to monthly payments, interest rates, and payment terms.
Just a couple of things:
Review your income and check if you can comfortably pay the loan every month. If not, then you may look for a better option or ask for the lender to lower your monthly payment. This is important because it can hurt your credit score once you miss a payment. Do the math before deciding. While a smaller monthly bill may sound nice, a longer-term will cost you more money in the long run.
You should also read the loan details from A-Z. Check the fees and charges for penalties so there won’t be surprises along the way.
Low interest isn’t everything. When shopping for loans, keep in mind that if a loan is too good to be true, it’s probably not real. Scams are aplenty in the personal loan world so credibility is also a key variable. If you see a slightly higher interest rate from a reputable institution versus a lower interest rate from somewhere vague, we suggest you go with the former.
Prepare your documents
Once you lock in with a bank or a lending institution, it’s time to prepare your documents. You can check on their website for the documentary requirements to apply.
Typically, a bank asks for these documents:
- Completely filled out and signed application form
- 1 Philippine government-issued photo ID
- Proof of address
- Income documents (If employed): Certificate of employment and compensation, latest ITR, latest payslip
- Income documents (If self-employed): Latest 1-year Audited Financial Statement, SEC registration / DTI certificate, business permit or mayor’s permit, latest bank statement, list of 3 trade references (at least 1 supplier and 1 customer) with contact details
Note: Additional documents may be required.
Review and finalize your loan
Once your documents have been accepted and you’ve completed all verifications required for final approval, you should receive your loaned amount within a few business days. If possible, set up a monthly auto-payment from your checking account to avoid late fees.
A personal loan can be a valuable tool for covering emergency expenses and big life events. However, it can also cause damage (especially to your credit score) if you don’t pay your monthly payments. Take time to look at all your options before committing to a loan, and make sure you’re confident that you can repay it over time.
Anna Collins
October 08, 2022
I appreciate you informing us that our credit score is crucial when determining our loan eligibility since a high one can lower interest rates while a low score can cost us more with shorter terms. My daughter is attending college soon, so I was planning on filing for a loan soon to pay for her tuition fees. I’ll be sure to check my credit score first before I look into how I can apply for signature loans. http://centralstatefinance.com/services.html