Personal loans are traditionally unsecured, small loans that are made to individual borrowers for relatively small expenses. Most credit cards, for example, are types of personal loans. However, the most cost-efficient personal loans are those that you obtain from banks. Bank loans almost always carry the lowest interest rates. Qualifying for a personal loan at any bank means that you must have excellent income, credit and borrowing history.
Things You'll Need
- Current copy of credit report
- Income documents (paychecks, W2's)
Obtaining Personal Loans
Pull a recent copy of your credit report. You'll also want to pay for a copy of your FICO score. This score, which ranges from 350 to 850, is a snapshot of your creditworthiness. The higher the score, the better your credit health. See Resources for a free copy of your report.
Confirm that your credit score is above 720. Without at least a 720 FICO score, you are unlikely to qualify for any personal loan.
Determine what you need to do to bring your FICO above 720. If you have any delinquent accounts, bring them current. Charge-offs and judgments must be paid. Revolving lines of credit must not be excessively utilized. Total indebtedness must be much less than your available credit. All of these actions will raise your score.
Calculate your debt-to-income ratio. You will not qualify for personal loans at banks without a low debt-to-income ratio. To figure this, divide your monthly expenses (excluding food, clothing, and utilities) by your gross monthly income. Any ratio above 45 percent will likely be too high to qualify for a bank personal loan.
Determine other factors that are reviewed by lenders. For example, if you've been at your job for an extended time (over five years), that will help your approval. Additionally, if you have a well-paid mortgage and car loan (both secured accounts), this will indicate strong financial responsibility.
Apply for bank personal loans. Make sure to compare offers side-by-side and choose the one that best meets your personal needs and financial goals.