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If you need some relief from your high-interest loan or credit card debt, you may want to consider a personal loan. With personal loans, which are offered by many banks and credit unions, you can consolidate or refinance your debts into a lower-interest loan with a fixed monthly payment.
Although they have some drawbacks – personal loans often have higher interest rates than the typical car loan or mortgage – they are a viable option for consumers who need to pay off high-interest debt.
Once you have decided on a personal loan, you should try to increase your chances of getting approval. Here are five tips to get a debt consolidation personal loan approved.
1. Decide on a type of loan
There are two main types of personal loans: secured and unsecured.
With secured loans, you need to put collateral like your home or car that the lender can own if you don’t pay. These loans have looser credit requirements and you may have lower interest rates and greater creditworthiness. However, you are putting your own property at risk.
Unsecured loans do not require collateral, but rely on your creditworthiness and repayment ability. You need better credit to get approved and you may end up with a higher interest rate than a secured loan.
2. Know how much to borrow
Before you apply for a personal loan, you should know how much you need to borrow. Add up the existing debt that you want to consolidate or refinance. You may not need this information right away, but it will help you determine your needs and avoid charging an artificially high amount.
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3. Know your credit
Before you apply for a personal loan, you should know your credit standing. This means that you should check both your credit report and your credit score.
Once a year you can check your credit report at all three credit bureaus free of charge at AnnualCreditReport.com. Examine your report carefully for any negative or inaccurate information that could affect your chances of approval. If you find bugs, you should dispute and have it removed from your credit report.
It is also a good idea to check your credit history before applying. You can have two of your Free credit scores, updated monthly, on Credit.com. Before you apply, you should do everything possible to Improve your credit score.
If you are in dire need of debt relief, you may not have time to wait for your credit score to improve. Even so, it is helpful to know the status of your loan.
4. Find the right lender
Not all financial institutions are created equal. Buy from multiple lenders, including banks and credit unions. You may need to choose your lender based on the bank most likely to approve your loan application, but you shouldn’t skip the first offer. Check the fine print, interest rates, and terms of all the loans you are considering.
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5. Create a checklist
When you’re ready to move on with your application, create a checklist of all the required documents. You may need to work with creditors, your employer, and others to pull it all together, so take your time. Incomplete applications can result in immediate rejection, so it’s important to have your ducks in a row.
Remember that debt consolidation only makes sense in certain scenarios. Depending on the possible interest rates and the term of the loan, you can pay more for a personal loan in the long run, even if the monthly payments are lower. Make sure you understand the total cost of a personal loan versus the total cost of your current debt. For more information, see our article about decide whether a debt consolidation personal loan is right for you.
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Brian Acton is a freelance writer and contributor at Credit.com. Years ago, when he was working to pay off debts and buy a home, Brian took an interest in personal finance and credit. Since then he has been dealing with these topics. Brian has a BA in History from Salisbury University and an MBA from UMUC. He lives in Maryland with his wife and two dogs. More from Brian Acton
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