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How to get a loan in the United States

There is a variety of options for getting a loan but an applicant should follow several steps from checking credit history to passing the process of the loan approval

6 min.

Getting a loan starts with a credit history review, prequalification and comparing credit options.

How to get a loan in the United States

Receiving an unsecured private credit

If a customer needs to borrow money to consolidate the existing debt on a credit card, move abroad or finance an adoption, a personal credit can help cover such expenses.

Most personal loans are of an unsecured type that means that any collateral like a house or car is not required.

Note! Borrowed amounts ranging from $ 1,000 to more than $ 50,000 and are repaid in fixed installments, usually during two to five years.

Rates and conditions typically depend on a specific loan conditions. Below are several steps that applicants should follow:

1. Check credit rating

A good credit rating provides more chances to obtain a loan with a lower percentage rate. Creditworthiness can be assessed by free checking of credit rating. In general, ratings are divided into the following categories:

  • 720 points and above: excellent rating
  • ranging 690-719 points: good rating
  • ranging 630-689 points: average or fair rating
  • ranging 300-629points: bad or poor rating

Possible actions for improving credit score should be undertaken before submitting an application. Timely payments and the existing credit amount regarding credit limits are the essential factors affecting credit rating. The check can be performed by claiming a free credit report and correcting any errors it may contain.

2. Compare available rates

Knowing credit score gives an applicant a better idea of the percentage rate as well as the loan amount that can be received.

3. Get a loan prequalification

Thanks to prequalification an applicant can have a notion of accessible offers. Many online creditors do a soft credit verification during prequalification which does not have influence on credit rating. Thus, it can be a really helpful tool for obtaining a loan.

Within the process of prequalifying applicants may be asked to provide the following information:

  • TIN
  • Income
  • Monthly promissory notes (rent, educational loans, etc.)
  • Current address of residence, e-mail, phone number
  • Previous addresses of residence, if any
  • Employer's name, business address and telephone number
  • Date of birth
  • Mother's maiden name
  • College name and occupation

Except a low credit rating there is a couple more reasons for a loan issuance rejection. They include:

  • Too little income
  • Little or no career history
  • Payment-to-income ratio of more than 40% is generally considered risky
  • A big number of recent loan inquiries such as credit card applications.

4. Search various personal loan options

Unsecured credits are provided by banks, online lenders and credit unions. To get the most appropriate offer a customer should compare prequalified offers with loan amounts, monthly instalments and rates of interest that other types of lenders offer.

Credit unions may grant lower rates and more flexible terms especially if a borrower has bad credit history. It is also very convenient as a small loan sum of $ 2,500 or less can be issued.

Note! Few major financial institutions propose unsecured credits to individuals. Local banks may have better rates especially for existing clients.

5. Compare various loan options.

Before selecting a private credit customers should:

Verify their eligibility for a 0% credit card. Having a good credit rating may allow getting a credit card on purchasing with a zero interest for a year or longer. This is a very beneficial option if the loan can be repaid within this time.

Have a cosigner. This can become the solution to get a private loan for borrowers who are not eligible for obtaining it on their own. Both borrower's and cosigner's income level and credit history are considered by the loan provider when approving the application and probably offering better terms.

Consider secured loans. If the borrowed amount is not large a higher percentage rate can be received with a secured credit. In this case presence of a security deposit like a vehicle or savings account is necessary. Provided the applicant owns a house then a credit line can be significantly cheaper than that of unsecured credits.

6. Pay close attention to information in fine print

As with any other financing a customer should read the loan terms carefully and also clarify any incomprehensible information. It's worth paying special attention to:

  • Prepayment penalties. It is not applicable to most online lenders but anyway should be verified.
  • Annual charges. The total loan value including any commissions for issuance must be clearly stated and calculated in the form of a per annum percentage.
  • Automatic withdrawal. If automatic withdrawal from the current account is required by the lender then it is better to set up a low balance alert in order to avoid overdraft fees.

Customers should also consider the following consumer-friendly features:

  • Repayment reports are provided to credit bureaus. Rating improves in case the lender provides information about timely payments to credit reporting agencies. All NerdWallet verified lenders guarantee this procedure to be undertaken.
  • Flexible options for payments. Some creditors grant choosing a payment date, arrears forgiveness or skipping a payment in case of difficulty.
  • Direct repayment to lenders. A number of issuers forward borrowed funds directly to lenders that is especially beneficial for clients consolidating debts.

7. Final approval

Once the appropriate loan provider has been chosen it is necessary to provide the following papers for a loan applying:

  • ID: they include a passport, a driver's license, a card of social security or another type of the government document.
  • Address of residence proof: these are utility bills or the rental agreement's copy.
  • Proof of income: include pay stubs, forms of W-2, tax returns or bank statements.

Important! Lenders conduct a rough credit check that can result in a slight applicant's credit rating decrease.

After receiving the final approval funds can be obtained, usually within a week.

Getting a personal credit can help ease debt burden and cover unexpected costs but anyway various options should be checked prior to making the final decision.

Note! A customer should borrow only the needed amount, find the lowest rates make and timely payments.

How to choose a proper lender

When searching a loan attention should be paid not only to the rate of interest or monthly instalments but also to the per annum percentage rate. This rate includes interest and any additional fees to be covered.

Applicants should consider loans providing consumer-friendly features that may be in need. For example, having a credit for debt consolidation means that money will be sent directly from lender to lender exempting clients to do it themselves. Other creditors may afford to choose a due date or forgive recurring late payments.

A half-point difference in percentage rate on a 5-year credit with the amount of $ 5,000 would cost about a dollar a month. But flexibility for payments transferring payment can prevent defaults and incurring late payment fines and thus, lowering credit score.

There are lenders that issue loans only for specific purposes. For instance, they provide services only to customers consolidating balance on their credit cards. Sometimes credit unions issue large credits only for home renovations but the majority of lenders do not require information regarding the way borrowed funds will be spent.

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