New or unexpected financial expenses can cause the need for more money than what you have, and that’s when you wonder “how can I take out a loan?”. Whether it is the purchase of your first house or an unexpected trip to the vet for your pet, a personal loan can be the solution.
How do you take out a loan?
There are many places where you can borrow money from, and the process for how to pull out a loan is nearly the same across the board. Follow these 7 steps to know how to take out a loan:
- Decide how much money you need
- Make sure you are in good financial health
- Explore lender options before you commit
- Understand the risks before you apply
- Selecting a loan and applying
- Receiving and spending the funds
- Paying back your loan
1. Decide how much money you need
While you may be excited at the prospect of having the money you need to cover the costs of something that is out of your basic budget, you need to first decide how much you can afford to take out.
It may be tempting to take out a little extra money, but it will all have to be paid back every month. Banks and financial institutions will approve you for as much as they calculate reasonable for your situation, but the amount you accept is up to you to figure out what works for your budget. Lenders will need basic information along with total income, to make sure that their calculations are accurate when deciding on the loan amount.
Assess your monthly budget and base that to decide how much money you can afford to borrow. Include any potential or additional income sources and the total of all expenses. Knowing what you can afford will help you make the best loan choice for your budget.
2. Make sure you are in good financial health
When considering how to take out a personal loan, it is necessary that you know that your credit history and score will be reviewed. Having a low credit score when applying for a loan will likely result in you having to pay a higher interest rate. The higher your credit score, the more money that you will likely be offered, so before you apply, make sure that you are aware of your financial circumstances and that it is the best they can be.
Accessing your credit report is easy through, whether it is through your bank or through a credit bureau like Equifax or Western Union. Depending on your credit score, the next step is either to improve your score, or start to figure out how to take out a loan from the bank.
3. Explore lender options before you commit
Before you sign any lending agreement, it is important to compare options. There are many types of lenders available, such as:
- Loans directly from your bank
- Loans from a credit union
- Loans from secondary market lenders
Each lender will offer something different, so depending on how much money you need to borrow and what you are wanting to use the money for, finding the best loan that works for you is not something to rush.
APRs are important factors to consider when shopping around for loans because that is what the total cost of the loan will be, including any fees and interest rates. Compare repayment terms and quality of service to help narrow down which lender will be right for you.
4. Understand the risks before you apply
Many people wonder “can I take out a personal loan?” without thinking about the long-term impact it may have on your finances. With each loan that you apply for, your credit report will require a hard inquiry from the lender. While these types of reviews are necessary to be approved for a loan, having too many of them done can result with lenders seeing you as a less than ideal candidate. There are resources that you can use online that will allow you to review the details of your loan offers and compare them, without affecting your credit.
5. Selecting a loan and applying
You have reviewed all your loan offers and have made a selection for the one that works best for you. The next step for how to take out a loan is to apply. As part of the application process, the lender may require documentation to prove your income and home address. Once the application is submitted, you need to wait for approval.
There are instances where you may not be approved for a loan. While, this may not be ideal for your circumstances, there are other ways to successfully attain a loan. Take action to improve your eligibility criteria and you will likely be approved when applying again.
6. Receiving and spending the funds
As soon as the loan has been approved, your lender will either mail you a cheque or the funds will be directly deposited into your bank account. You should receive your money from your lender within a few business days.
Now that the funds have been approved and sent to your bank account, make sure that you are spending the money with the intended intentions. Spend the money as soon as possible to avoid unnecessary interest, while also not being tempted to spend it elsewhere.
7. Paying back your loan
Taking out a loan may seem like free money, but it will need to be paid back in full. Make sure that you have a detailed plan that makes sense with your budget and repayment schedule before you accept the loan. One way of increasing your credit score can be to make sure you are covering the full repayment on time, every time, which will show that you are a good candidate should you need another loan in the future.
Common Questions When Taking Out a Loan
When should I take out a personal loan?
If you are struggling to make ends meet financially or if you are ready to take on bigger monetary responsibilities like owning a home or car, it may be a good time to consider how to take out a loan. As long as you can prove with a good credit score that you are responsible with your money and have a steady income, you will likely have no issue getting the loan you need.
How can I take out a loan?
Knowing how to pull out a loan is simple, and the process may not even require you to leave your home. Applying for loans online or in person through a financial institution, bank, or lending service can offer you the money you need to cover your expenses, whether it is for a small or large amount. You can begin the application process immediately when you are ready to take out a loan.
What do I need to begin the loan process?
If you are ready to apply for your loan, you will likely need to gather some information for the lender. This can include:
- Identification
- Social security number
- Proof of residency
- Tax returns
- Bank statements
- Proof of income/pay slips
- Information about any other debts you may have
Once you have all the information necessary, you can confidently begin applying for a loan.