What to Say When Asking for a Personal Loan

There are all kinds of reasons to apply for a personal loan, and you don’t owe an explanation to anyone other than the loan company. Even then, you ultimately have the power and freedom to spend the lump sum you receive however you see fit.

How Reasoning Affects Your Personal Loan Terms

Some personal loan companies offer better rates and terms for certain loan purposes over others, or they might offer longer repayment terms in specific situations. As an example, you might be offered longer repayment terms for a home improvement loan than if you apply for a personal loans for debt consolidation. Meanwhile, interest rates can also be lower for home improvement loans and loans for other purposes over debt consolidation loans.

The reasons why terms vary depend entirely on your lender and their approval process, and they can also vary by loan company. As an example, at the time of this writing, LightStream offers interest rates as low as a 7.99% annual percentage rate (APR) with auto pay. However, rates start at a higher threshold if you list options like debt consolidation or wedding financing as your reason for a personal loan.

Common Reasons for Personal Loans

Personal loans are common in a range of circumstances where someone needs a lump sum of cash that they can utilize right away. These loans are usually unsecured as well, meaning there is no requirement for collateral to get approved.

Common reasons for a personal loan include:

• Debt consolidation
• Home improvements
• Wedding financing
• Major home purchases
• Adoption expenses
• Medical expenses

How to Answer Lender Questions When Applying for a Personal Loan

When you apply for a personal loan online or at a brick-and-mortar financial institution, you should be as honest as you can when it comes to the reason why you want to borrow money. If you need access to cash so you can pay for a cruise or an all-inclusive resort stay, for example, you would select an option that says something to the effect of “vacation” during the application process if it’s listed. If not, an alternative option that says something like “other” or “financing a large purchase” could work as well.

The same rule applies if you need a personal loan for debt consolidation, a home remodeling project, or financing an upcoming wedding. The lender can deny you your loan if they find out that your application contained incorrect information.

Is a Personal Loan Right for Me?

Personal loans are popular with consumers for a few reasons, including the fact that they come with fixed interest rates and fixed monthly payments. These loans also come with a set repayment plan that won’t change, meaning you’ll know upfront how long it will take for your loan to be paid in full.

With all this in mind, a personal loan makes sense when:

• You need a lump sum of cash that you can spend: Where credit cards offer a line of credit that you can use to make purchases, personal loans offer a lump sum of money that’s sent to your bank account. This makes personal loans a better option for borrowers who need actual cash that they can spend however they see fit.
• The monthly payment for which you qualify is affordable: Personal loans are best for people with predictable incomes who can afford to make the loan payment they’re offered when they apply.
• Paying the money back is a priority: If you fail to repay a personal loan, your credit score will suffer considerable damage, and other negative consequences can come into play. Personal loans are best for people who have a concrete plan to pay their loan back in full.

Finding the Best Personal Loan for Your Needs

The good news about personal loans is the fact that so many lenders compete for your business. Even better, you can compare all of them online and from home. By taking a look at the best personal loan companies, you can figure out which ones have the loan terms and features you want the most. 

Several factors to consider with each loan company include:

• Approval requirements: Some lenders list specific approval requirements on their websites, including a minimum income or minimum credit score.
• Convenience: Look for lenders that make it simple to check on your loan, in addition to allowing you to make payments online or using a mobile app.
• Interest rates: Search for lenders that offer the lowest starting interest rates, keeping in mind that your interest rate will impact your total loan costs the most.
• Monthly payments: Check the minimum monthly payment listed for the amount you want to borrow and make sure you can easily afford it. If in doubt, use a personal loan calculator to see how much you would owe each month.
• Pre-approval: Some lenders let you check your rate or gauge your approval odds before you apply, which can give you an idea of the loan terms you can qualify for without a hard inquiry on your credit reports.
• Repayment terms: Some lenders let you repay your loan through five or six different repayment plans, whereas others may only offer two or three.
• Time to funding: Finally, check whether lenders offer fast funding in as little as a few business days—especially if you need money quickly.

How to Apply for a Personal Loan

Applying for a personal loan can look different depending on which company you go with, but most request the same basic information during the application process. For example, you might be asked to share any of the following:

• Assets you have, including savings and investments
• Citizenship status
• Date of birth
• Driver’s license number
• Employment and income information
• Loan purpose
• Personal details like your full name, address, and phone number
• Requested loan amount
• Requested loan repayment term 
• Social Security number (SSN)
• Total monthly housing costs

Once you find a lender you prefer and apply for a personal loan, you may be approved in a matter of a days (or even sooner). You may also need to supply supporting information to finalize your loan application, such as pay stubs from an employer or recent tax information.

The Bottom Line

Whether you need to consolidate and pay down high-interest debt, purchase a new computer, or pay for a much-needed vacation, a personal loan could be the answer. Comparing loan options, including different rates and repayment terms, is the only way to know for sure.