A personal bank loan is unsecured financing for use in a variety of endeavors. In contrast to secured debt, a personal loan involves an application review based on your income, credit rating and additional financial data.
The process to obtain a personal loan typically begins with an application or a conversation with a banker. If you have excellent credit, you may even receive preapproved offers from creditors. After you submit your application and supporting documentation, the decision can take anywhere from a matter of minutes to days or weeks depending on how strong your application is and the prospective lender's policies. Wells Fargo, for example, promotes some types of personal loans with credit decisions in 15 minutes or less. Funding is made the same day of approval. Such efficiency in the approval process isn't consistent. Submitting online often speeds up the process relative to sending in paperwork.
Materials and Decision Factors
With a secured loan, the bank has recourse in that it can repossess your property if you don't pay. An unsecured personal loan is a bit more risky. Therefore, the lender relies more on your proven credit worthiness. Your FICO score and overall credit report are big factors in a personal loan decision. The higher your score, the more you can borrow and the better your interest rate normally.
A secured loan, such as a home equity loan or line of credit, is another financing option if your credit isn't strong and you can handle another lien against your property.
Documentation and materials commonly required for a loan include:
Completed application: Some banks won't approve a personal loan if you leave anything blank on your application, according to Forbes. The loan application requests such details as your contact information, employment, income, proposed loan term and the amount you want to borrow.
Income documentation: On small loans, or in cases where you have excellent credit, you may not have to submit proof of income. If you do, you may need to provide W-2 tax forms, recent pay stubs or both.
Employment verification - Lenders often are more concerned with your future money stream rather than your historical income. Therefore, the bank may call your current employer as listed on the application to confirm your work status and possibly your income.
In additional to traditional banks, credit unions are another option for applying for a personal loan. There also are online crowdfunded platforms where people who have less-than-stellar credit can apply for loans funded by investors looking to make money on the interest.
Reviewing your income and credit report before applying helps you identify your loan limitations and ability to repay debt, according to Forbes. Poor credit, lack of verifiable income and an income application are common reasons for rejection.