7 Questions to Ask When Applying for a Personal Loan
Are you in need of a personal loan to buy a car or afford another large expense? Here are some personal loan-related questions that can help you through the process of securing your loan.
You might consider a personal loan when you have a large expense and don’t have the money you need to pay for it all up front. Personal loans can be used for expenses like a wedding, new car or paying off high-interest credit card debt. With a personal loan, you’re charged interest on what you borrow and agree to pay the loan back through fixed monthly payments.
Financial institutions, like Cadence Bank, offer various types of personal loans. Below are some common questions to ask yourself and your bank when applying for a personal loan:
- What is the personal loan for?
- Can I afford the loan?
- What is the loan term?
- What documentation do I need to provide?
- What’s my current credit score?
- What interest rate can I expect?
- What fees are part of the loan?
1. What is the personal loan for?
What to ask when getting a loan begins with determining what financial need is causing you to consider a personal loan. Depending on what you need funds for, a different lending option may work better.
Consider how much you need to borrow and when you can expect to pay back what you owe. For example, maybe you need money to cover a medical bill but feel confident you can pay it back within a couple of months. In this case, you might consider using a credit card. Personal loan terms are typically one year at minimum but could last upwards of five years. You pay interest on every monthly payment.
If you need to pay for something where payments are unpredictable, like home renovations or medical bills, you may benefit more from a personal line of credit. Similar to a credit card, a personal line of credit has a credit limit you can borrow from as needed. You only pay interest on what you owe. For specific expenses with a fixed cost, a personal loan sets you up for predictable monthly payments.
Types of Personal Loans:
- Auto Loan
- Home Equity Loan
- CD & Savings Secured Loan
- Consumer Real Estate Loan
- RV, Boat & Motor Home Loan
>> Related Reading: Deciding Between a Personal Loan vs. Line of Credit
2. Can I afford the loan?
Another one of the important questions to ask when applying for a personal loan is whether or not you can realistically afford to pay it back. There are risks when you take on debt like a personal loan. If you fail to make payments on time or default on the loan, your credit score will be negatively impacted.
Some personal loans are secured, meaning they require you to offer your home, car or another asset as loan collateral. If you default on a secured loan, you lose your asset(s). Determining what you can afford ensures that you make timely payments and retain your assets.
3. What is the loan term?
Asking about the term is one of many important personal loan related questions. The loan term affects how much interest you pay and by when you’re obligated to pay off your loan.
A shorter loan term decreases the amount of interest you pay, but it may also increase your monthly payments. The ideal loan term leads to affordable monthly payments, and hopefully spares you some interest.
There may be refinancing options with personal loans, which means you could potentially change the term of the loan if your needs change in the future. In case refinancing is not an option, you should be comfortable with the initial terms of your loan.
4. What documentation do I need to provide?
This is another valuable question to ask when applying for a personal loan. To determine whether or not you’re a trustworthy borrower, lenders typically review your financial history and ask you to provide some documentation. Knowing what documentation you need prepares you to fill out a personal loan application or meet with a personal banker.
Personal Loan Documentation May Include:
- Personal Information
- Proof of Address
- Proof of Identity
- Proof of Employment & Income
Below is a list of documentation you may need to provide when applying for a personal loan through Cadence Bank.
- Personal information: You may begin the personal loan process by completing an application and will likely be asked for personal information like your name, date of birth and address. You’ll also document how much money you’re seeking and why you want a personal loan.
- Proof of address: You may also be required to submit proof of your address by providing documentation like a voter registration card, lease documents or a rental agreement.
- Proof of identity: To prove your identity, you’ll need to present multiple forms of government-issued identification. This may be a passport, driver’s license, birth certificate, state-issued ID or certificate of citizenship.
- Proof of employment and income: This shows you have stable funds to make your loan payments. Depending on the type of loan you apply for through Cadence Bank, we may require documentation such as your most recent year-to-date pay stub, previous W-2s, personal tax returns and/or a current personal financial statement.
5. What’s my current credit score?
Another way a lender will vet you as a borrower is to look at your credit history. Applying for a personal loan can result in a hard inquiry on your credit report, which may have a negative impact on your credit score. When you have several hard inquiries within a short time frame, that can decrease your score. Knowing your credit score before you submit a personal loan application can help.
When you know your credit score ahead of time, you can research how it may affect the interest rate of your personal loan. This helps you assess what types of personal loans you might qualify for and which ones will make the most sense for you. The best way to figure out what you qualify for, however, is to speak with an experienced banker. They can explain how your credit score may impact your personal loan and provide tips to improve your credit score if needed.
Checking your own credit score is free and doesn’t impact your credit score. You can usually request a free credit check through your bank or credit card company. You’re also entitled to one free credit report every 12 months from each of the three credit reporting agencies (Equifax, Experian and TransUnion). Visit AnnualCreditReport.com to access your free credit report.
6. What interest rate can I expect?
Of all the questions to ask when applying for a personal loan, you might be most curious about this one. Your personal loan interest rate determines how much extra money you pay, in addition to paying back your principal loan amount. The average interest rate of 24-month personal loans was 8.73% in the second quarter of 2022, according to data from the Federal Reserve.
Knowing your loan’s interest rate helps you budget for your monthly payments. To determine how much interest you’ll pay over the life of a loan, you can use a personal loan calculator. Remember that the term of your personal loan will also affect the overall interest you’ll pay.
7. What fees are part of the loan?
In addition to paying interest, you may pay extra fees for personal loans. Some of these potential fees are described below.
- Application fees: An application fee is charged to process your personal loan application.
- Origination fees: These fees are charged when your loan is approved and you receive the loan funds.
- Prepayment fees: Sometimes, prepayment fees are charged if you pay back your loan early.
- Late payment fees: If you miss a payment, you’ll be charged a late fee.
- Insufficient funds fees: A returned check or insufficient funds fee is applied when your account balance is not enough to cover your personal loan payment.
If you pay off your loan according to schedule, with in-full and on-time payments, you generally won’t have to worry about late or insufficient funds fees. Ask about application, origination and prepayment fees to find out how they may impact your overall payment.
Are you in need of a personal loan?
This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.