Taking out a personal loan generally requires making an application with a bank. If you are approved, you must then sign a promissory note before receiving the funds. However, getting the loan isn't always so straightforward. There are a number of things to consider, such as the interest rate you'll pay and whether your credit history might require a co-signer.
Personal Loans Are Usually Unsecured
One benefit of choosing a personal bank loan over other types of loan, such as a home equity line of credit, is that it's an unsecured debt. This means that the primary borrower and co-signer don't need to pledge any collateral, such as a home, in order to be approved. Although defaulting on a personal loan can hurt your credit and ultimately result in court judgments, the lender has no automatic right to your property if you default.
Check Your Credit Score Before Applying
Often, when a bank reviews a personal loan application, consumers discover that their credit scores aren't as good as they thought. It's a good idea to check your credit score before submitting your loan application. Some consumers who become victims of identity theft don't even realize that lines of credit have been opened under their names until their credit score are already damaged.
Co-signers Can Be Held Responsible
If you're considering co-signing a personal loan for a friend or family member, you should fully understand the terms of the promissory note. These include the penalties and fees you'll be responsible for if the primary borrower defaults, the rate of interest you must pay, and exactly how much time the bank allows before contacting you for payment. Also be aware that when you co-sign a loan, it's reported on your own credit report. Even if all payments are made, the additional debt reported may affect your ability to obtain credit.
Keeping All Loan Documents in a Secure Place
Loan applications always require extensive personal information, such as Social Security numbers, addresses, phone numbers, and employer information for both the borrower and co-signer. As a result, a single loan application can provide enough information for a fraudster to easily steal your identity and begin cashing in at your expense. The first line of defense against identity theft is simple: keep all loan documents in a secure place. Consider shredding any documents containing this kind of information before placing them in your garbage.
A Consumer Lawyer Can Help
The law surrounding personal loans can be complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a banking lawyer.