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1. Check your credit score
If you're beginning the loan
process for the first time, start
by getting your credit score.
You can usually find your score
for no cost on your credit card
statement or online account. You
can also pay for it from a credit
reporting agency.
2. If something looks amiss, pull
your credit report
Your credit score is three-digit
number that measures your
likelihood to repay a debt. It's
based on the information
contained in your credit report,
which monitors all of your credit-
related activity.
You can find your credit report
for free on
annualcreditreport.com from any
of the three major credit bureaus
weekly through April 20, 2022.
While this report won't give you
your credit score, it will show you
information about your credit and
payment history, which lenders
use to decide whether to give
you a loan. Reviewing your credit
report can help you know what
you need to improve.
3. Know that loans can actually
boost credit scores
If you are looking to take out a
loan to consolidate credit card
debt, or pay debt down faster, it
can help in more ways than you
may realize. Making payments in
a reliable, timely manner will have
a positive impact on your credit
score as the lender reports these
payments to the three major
credit bureaus.
Paying down debt can also help
improve your credit utilization
ratio, which is the percentage of
available credit you are using.
Experts advise keeping this ratio
at 30% or below.
Taking out a personal loan can
actually help boost your credit
score because your credit mix —
which refers to the types of
different credit accounts you
have — determines 10% of your
overall credit score.
4. Understand that there are
types of personal loans
There are two types of personal
loans: secured and unsecured.
Unsecured are loans aren't
supported by collateral, like a
house or other assets. A bank
evaluates whether to grant you
the loan based on your financial
history and credit score.
If you don't qualify for an
unsecured loan, lenders also offer
secured options that can be
backed by assets or accounts you
have at the bank or other things
you own. Mortgages, home equity
loans, and auto loans are
considered secured loans, since
you're putting up collateral.
Remember that if you take out a
secured loan using your home,
your car, or something else as
collateral, you run the risk of
losing those things should you
become unable to pay your loans.
"Because unsecured loans don't
require collateral, they are viewed
as riskier and may have a higher
interest rate to offset this risk,"
Krajicek says.
Some lenders that offer
unsecured loans, including banks
and credit unions, will also offer
secured loans.
5. Make sure your bank offers
personal loans
To get a personal loan from a
bank, you'll generally need to be
an existing customer with good
credit. Some banks don't offer
personal loans, so you'll want to
find out what your bank does
offer.
If your bank doesn't offer loans
— or even if it does — you may
want to get quotes from online
lenders and credit unions. These
options can be an alternative to
bank loans, or a basis for
comparison.
After you've checked rates
offered by online lenders and
credit unions, see if your bank will
offer you a better deal.
6. Get your paperwork in order
One of the most challenging parts
of getting a bank loan is the
amount of documentation
required.
The nature of the paperwork will
vary based on the type of loan
you're applying for. But in
general, you can expect to need:
Pay stubs/proof of income
The last couple years of tax
returns
Documentation of 401(k)s and
other financial accounts
Photo ID
Rent/mortgage history
Proof of collateral, if you're
pursuing a secured loan
Get these basics in order before
applying for the loan, in order to
speed up the process.
7. Try to get preapproved
Although it's not a solid
guarantee, preapproval is when a
lender extends an unofficial offer
on a loan, pending full approval.
In this instance, preapproval will
tell the borrower what loan
amount, terms, and repayment
schedule they will likely qualify
for in advance. Also, a
preapproval acknowledges that
the borrower has met the bank's
general eligibility requirements.
You won't impact your credit
score if you check your loan rates
for preapproval, because most
companies only produce a soft
credit inquiry when pulling your
credit report. That won't be
visible to third parties or affect
your credit score.
The process usually includes an
application and a credit history
evaluation. Remember that while
it's a worthwhile step to take,
there's no guarantee that the
bank will extend the exact same
terms when it comes time to
issue a loan.
8. Know the terms
Personal loans are installment
loans, which is when you borrow a
fixed amount of money and pay
it back with interest in monthly
installments over the life of the
loan.
The terms of the loan can range
from 12 to 96 months. When you
complete the loan terms, that
loan is considered closed. If more
money is needed, you must
reapply for a new loan.
Tabitha Mazzara, director of
operations for MBANC, a
consumer-direct mortgage lender,
says there are a few questions
you should ask yourself before
signing on the dotted line.
"You should know how much you
need before going into it," says
Mazzara. "What are the terms?
When will I have to pay it back?
What's the interest? Can I afford
the payment? What are the
fees?"
9. Make a plan to pay it back
After you get your loan, make
sure you have a plan to pay it
back. How much will you owe per
month? Do you plan to pay the
minimum required, or to make
extra payments and pay it back
more quickly?
Consider setting up automatic
payments from your checking
account once your paycheck
clears, or calendar reminders to
make sure you never miss a due
date.
There are many steps you need
to take to get a bank loan, and it
is worth taking extra time to
compare all your offers before
settling on a particular company.

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