Personal Loans for Debt Consolidation

Debt has a bad reputation for ruining lives, prompting many to form a debt-free goal. Rather than paying off each credit account individually, consumers favor using personal loans for debt consolidation to cut interest payments. This is a solid debt repayment strategy, unless you fall into the common debt consolidation traps. Using personal loans can alleviate some of the pitfalls, but you must be cognizant of others.

Debt Consolidation Trap #1: Transfer Fees

Some lenders, usually credit card companies, charge balance transfer fees when you consolidate to their product. Using personal loans for debt consolidation is one way around this because personal loan lenders may not charge this kind of fee. Always read your fine print to ensure you don’t rack up unexpected charges. Otherwise, transferring balances to your new lower interest rate will not save you as much money as you thought.

Debt Consolidation Trap #2: Creating New Debt

No one can know exactly what curve balls life has in store, which is the reason so many individuals incur debt in the first place. This fact makes credit cards an attractive safety net to those without ample funds set aside in an emergency savings account. The problem with this plan is that it’s easy to charge cards back up to pre-consolidation levels after you use a personal loan to consolidate debt. If you aren’t careful about changing your spending and saving habits, you’ll end up with the same debt payments you had before, plus the consolidation payment.

Debt Consolidation Trap #3: Consolidation Payments

Lowering your interest rates through debt consolidation loans makes good financial sense when you do the math. It doesn’t, however, always equate to good cash flow sense. Where you once had small payments scattered throughout your month, you now have one large payment due. In some cases, your personal loan payment will exceed what you bring home in a week. If this is the case, you must develop a budget that allows you to save a portion from each paycheck to make your payment. If your lender has the contractual option of raising your interest rate over late payments, you may end up in a worse financial position than you were in before consolidating your debt. Even if they don’t change your interest rate, you’ll pay a substantial amount in late fees and your lender will report a poor payment history to credit bureaus.

As long as you carefully read your lending agreement and are diligent about changing your spending habits, personal loans for debt consolidation purposes will save you money while you whittle away at your debt.

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Personal Loan Rates

Searching for the perfect loan option for you often means comparing the rates of competing lenders. You understand how the interest rate charged affects your payments and know it’s important to find the lowest personal loan rates available. What you may not know is exactly how lenders determine the interest rate they charge to lend you money.

Lenders use the following factors to set personal loan rates:

• Credit history
• Collateral
• Loan type
• Loan terms

Credit History

Reviewing your credit file gives lenders a good idea of how reliable you are to repay the loan. Generally, the closer you are to the perfect credit score of 850, the lower the rates you’ll enjoy as a result. Lenders sometimes tier personal loan rates based on credit score, so if you can maintain a score in the 700s, you should still receive a low rate.

Collateral

It’s no secret that lenders are more willing to take risks by giving loans to individuals with shaky credit when they have collateral. Collateral for a personal loan can be anything from a house to a car to stock certificates. Keep in mind that your collateral must have a tangible resale value in order to be accepted by lenders. Family heirlooms may have sentimental value to you, but banks won’t accept them unless they can be quickly sold for cash.

Loan Type

The type of loan you choose will often play a major role in the lender’s rate. Payday loans, for instance, carry some of the highest personal loan rates in the industry because of their extremely short terms. On the other hand, home equity loans maintain lower rates with possible tax advantages due to the nature of the collateral. If multiple types of loans will suit your purpose, make sure to compare rates between types, as well as lenders.

Loan Terms

The length of time you want to repay the money and your loan amount play a role in the interest rate with many lenders. Although all loans constitute income to financial institutions, they make the bulk of their profit from the larger loans amounts. If you lender uses the loan amount to determine your rate, ask how much more you must borrow to get a rate discount. Also, remember that the longer you take to repay the loan, the riskier it is for your lender that you’ll default on the loan. If you can afford higher payments, you may save on interest by shortening your loan’s term.

Every lender uses a different method to set personal loan rates, but if you remember these four key elements, you can find the lowest possible rate.

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Personal Loan Rate Basics

When you’re ready to apply for a loan, it’s important to know how your lender sets the personal loan rate they offer you. This is not an arbitrary number selected on a whim, but the sum of careful calculations they do concerning the nature of their business and how you fit into it. Knowing how they set the rate can help you to maximize your chances of getting the lowest interest rate possible.

Banking Industry Factors

Sometimes, the personal loan rate your financial institution offers to you has little to do with your creditworthiness. Industry factors play a large role in most service oriented businesses, but this is especially the case with financial companies. When the industry faces uncertain times, you’ll notice it in bank interest rates.

For example, a higher than normal percentage of defaulting mortgages causes a ripple effect through the financial industry because many banks are also in the home loan business. When one business unit takes a loss, the whole company must look for ways to cover these losses before shareholders hold them accountable for a decreasing stock value. Offering loans is the primary way banks make money, so increasing the personal loan rate is their best chance for additional profits until they can sell off their bad assets.

Personal Credit Factors

When market forces are not in play with the personal loan rate, your credit is the single largest factor determining what rate you receive. In general, the higher your credit score, the lower the interest rate on your personal loan. When you wish to obtain the low advertised rate of a lender, remember that good credit is not always enough. Within the fine print, the lender may stipulate the rate requires credit qualification. This can equate to scores hovering near perfect, not just above average.

Loan Amount Factors

If everything in your credit is top notch and the industry as a whole is without scandal, it doesn’t always make immediate sense why you did not get the interest rate you deserve. Rather than reflecting on you, your personal loan rate might be a reflection of the loan amount. It’s no secret that larger loans generate more profit for financial institutions than small dollar deals. You can ask your lender if increasing your loan amount will qualify you for a better interest rate, but know that the bank threshold may be beyond your reach, perhaps as high as $50,000 for a personal unsecured loan. In this case, the offered rate is the best deal for your loan amount.

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Personal Loan Options

If you’re thinking about applying for a personal loan, you have a lot to consider. Under the umbrella of personal loans, you’ll find a variety of loan options, all with individual terms and nuances. Before you apply for any loan, find out about the different types available to you in various situations to determine which is right for you.

“I want a car.”

Getting a personal loan to buy a car is a relatively easy matter. In most cases, you go to the dealership to browse the selection and drive away in your new car with dealer financing. Because dealerships don’t make a dime until the car drives off the lot, they make a wide range of lending options available to customers to expedite the process. Whether you select the standard auto loan, lease or balloon payment option, your auto dealer is not your only lending source.

Banks and credit unions offer vehicle purchase loans, although they do not always advertise the fact. If you have a solid credit history, you can get a personal loan from your financial institution using your new car as collateral. You can also refinance the loan you get at the dealership to your bank at a later time.

“I want a house.”

A mortgage is your best personal loan option for home purchase. Extended terms of 30 years create budget-friendly payments for this hefty purchase. Mortgage lenders determine approval based on your loan size, credit score and income; however, bad credit mortgage options exist if you’re willing to pay higher origination fees and interest rates.

When you want to design and build your house instead of purchasing within a housing community, you’ll need land. Lot loans are special personal loans that allow you to buy your land separate from your builder. You then roll the lot loan into your mortgage when it’s time to close the deal.

“I want to consolidate my debt.”

Debt consolidation is a hot topic among consumers looking for ways out of debt. If your credit is strong, an unsecured personal loan is an option to help lower your interest rate and payments. Homeowners who owe less than their home is worth have an additional option for debt consolidation in the form of home equity loans. Rates are typically lower than unsecured loan rates, but every state has different guidelines for equity lending. Talk to your lender to explore this option.

Every financial institution offers different personal loan products, so it’s smart to talk to multiple lenders about what they offer early in your decision-making process.

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Personal Cash Loan Tips

Not every loan must come from a bank or other lending institution. Times exist when a personal cash loan between friends or family members is more appropriate than visiting a brick and mortar business. Unfortunately, mixing money and friendship can be a difficult task, even when a solid relationship is present. Whether you’re borrowing money or lending it, you can minimize the chance of friendship ending loans with five tips.

Written Contract

Borrowing $3,000 from a friend isn’t the same as using his lawn mower. A personal cash loan is a serious financial transaction requiring timely repayment and both parties should treat it as such. Putting all the specifics in writing not only solidifies your commitment to the deal, it allows no room for later disagreement about the exact terms. Make sure you include the loan amount, payments, interest rate – if applicable – and your notarized signatures.

Fair Interest Rate

It’s not just a good idea to offer a fair interest rate on personal cash loans; it’s the law. You can get an idea of the going interest rates for varying loan amounts by visiting lender websites, but keep in mind most banks must follow different rules than individuals. To ensure you aren’t charging a “loan shark” rate, find out the maximum legal rate allowed in your state and stay under it.

Responsible Repayment

Friends are often more forgiving during hard times than lending companies, but that’s no excuse for lax repayment. Treat the personal loan from a friend just as you would an obligation to any other lender. Always strive to make full payments on time, even when your friend tells you take as much time as you need. You don’t want to lose a friend over money.

Responsible Lending

If you plan to lend money to someone, make sure you can afford to be without the funds. Helping someone in his or her financial time of need is a noble deed, but overextending yourself is not the help your friend needs most. When you lend more than you can afford, you may begin asking for repayment every time you see your friend, straining the relationship. On the other hand, offering to help someone using money you don’t immediately need puts less pressure on you and your friendship.

Gauge the Relationship

Before lending money or accepting a personal cash loan from anyone, determine the nature of your relationship. Do you really know each other well enough to enter into a financial arrangement? Do you trust this person to repay the money? Are you comfortable owing money to some you know? If you cannot answer these questions in a positive manner, consider other loan options.

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Need a Fast Personal Loan?

When you need money, you may feel pressure to find it as quickly as possible to avoid missing an opportunity. Before you rush out to apply, it’s wise to take a moment to evaluate why you need a fast personal loan. Although your need can be legitimate, you may discover it’s an impulse decision best ignored.

Think about the purpose

Because you don’t often wake up and decide to borrow money for no reason, every loan has a distinct purpose. With all loans, you should always carefully weigh the costs of financing against the benefits afforded by your purchase, be it a house, car or new business venture. Needing a fast personal loan for a purchase is no reason to forgo this internal thought process.

In this case, the difference is that you must determine whether the abbreviated time constraints make your purchase as worthwhile as you believe. Do you truly need cash fast or do want speed? A difference between the two exists. The former implies you’ll lose the deal, while the latter speaks to your impatience.

Evaluate your options

By nature, some loan options are quicker than other options. For instance, a borrower in Texas who wants a fast personal loan will not benefit from a home equity application because of the extended cooling off and rescission periods. Once you determine a time constraint affects your purchase, consider only those options available within the appropriate amount of time.

Loans requiring collateral generally take longer to complete than unsecured options. In states where equity lending is a speedy process, you still must wait for an acceptable appraisal and title check. When the amount of money you need is relatively small and you can afford to repay it within a few months, a payday loan is perhaps the fastest personal loan available.

Consider the consequences

Just because you find a fast personal loan option does not mean you should take it. Some lenders prey on people who need money now by charging high interest rates and inflated application fees. You also risk overlooking a solid loan option because of your rush. Make it a habit to evaluate all the variables of how a particular loan will affect your life, not just your ability to make your purchase. If you have enough time to sleep on an offer before making your decision, do it. What seems like an emergency in need of finance one day might seem less dire the next.

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Long Term Personal Loans

When you know you cannot repay the money you want to borrow within a year, long term personal loans are your best option. Unlike alternatives with abbreviated terms, these loans become part of your budget and can affect your credit rating. It’s important to understand the way these personal loans will fit into your life before you submit your loan application.

Long Term Personal Loans and Credit Reporting

Your credit file is nothing more than a compilation of the way you manage your credit. Creditors who offer you long term personal loans will periodically send information about their experience with you to the credit reporting agencies. If you follow the terms of your lending agreement and always make your full payment on time, you have no reason for concern. In fact, your credit score can benefit from this positive lending relationship.

In order to report to the credit bureaus, lenders of long term personal loans typically wait at least six months to collect a fair amount of information on your payment history. Keep in mind, they will notify the credit bureau as soon as they open a new account for you. This activity in and of itself has the power to change your credit score, depending on the size of the loan and how it changes your debt utilization ratio.

Long Term Personal Loans and Budgeting

When you accept a payday advance loan, your expectation is to pay it off from your next paycheck. You might tighten your belt for a few weeks or a month to do so, but the changes are not lasting. Long term personal loans, on the other hand, require careful consideration because these payments span years.

Always start with a review of your household budget. How much money can you afford to spend on loan payments each month? If you determine you cannot afford the size loan you need, look for ways to decrease your spending in other areas, but stay realistic. When your family typically spends $600 each month at the grocery store, it’s unreasonable to sustain a cut of $300 to the family food budget. While this is a logical place to cut spending for a month to cover an emergency, keeping it up over the next several years can cause a hardship.

Before you start looking for long term personal loans, make sure the monthly payment is a good fit in your budget. Getting the car or home of your dreams means little if you lose it for non-payment after a few months.

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Loan Consolidation Programs

When debt spirals beyond your control, it’s natural to look for ways to pay off your balances faster. Loan consolidation programs may come under fire for doing little to decrease the overall debt, but these programs are valuable tools you can use. Before you sign up with any program, it’s smart to learn the about the different types of consolidation programs and what each entails.

What consolidation does not do for you

A loan consolidation program is not a magic financial pill that will erase all your debt in the blink of an eye. If any loan counselor or lender tells you they can do this, run. Although your debt payments will combine into a single monthly payment, your total balance usually stays the same. Your consolidation will also not remove negative information reported about you from your credit report.

How bank consolidation programs work

Applying for a loan consolidation through your bank is the same simple process as it is to apply for any loan. Essentially, you’re looking for one loan to pay off all your existing balances. If your credit history and income is sufficient for your bank’s underwriting guidelines, you might be able to use an unsecured personal loan for your consolidation. Sometimes, using the equity in your home or securing the loan with your car is a better option.

Regardless of which bank loan option you choose, your lender will request current statements for each debt included in the loan. After loan closing, your banker prepares checks for each of your creditors and sends them on your behalf to repay the loans.

How debt management plans work

If you go through a credit repair service or a credit counseling agency, they may not have a loan consolidation program. Instead, they contact each of your creditors to negotiate lower interest rates, fees and payments on your behalf. Once they complete negotiations, you receive a total of what you owe them each month. After you pay into your debt management plan, the agency disburses payments to each creditor and keeps a small percentage as their fee. Qualifying for a debt management plan usually does not require a credit check, making it a viable option for individuals with bad credit.

A loan consolidation program through either a lender or a credit counselor can lower your payments to a manageable level, making it possible for you to pay more towards your credit obligations each month than you could before the consolidation.

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How to Find a Loan

Between television, radio and print advertisements, there is no shortage of information on how to find a loan. The problem is sorting through all the hype to get to the financial information you need to choose between loans. Instead of letting the media draw you towards a particular type of loan or a certain lender, develop your own strategy when borrowing money.

Step 1: Determine your needs

You wouldn’t go to a mortgage representative to find a loan for vehicle purchase, so defining the scope of your needs is crucial to successful borrowing. Why are you borrowing money? How much will it cost? Knowing the answers to these two questions will focus your search in on lenders who can provide what you desire.

Step 2: Look for experts

Ignore comical television commercials and turn your attention to the recognized experts in the lending industry. Payday loan companies handle cash advance loans better than any other lender, just as home mortgage representatives are experts at obtaining affordable mortgage products. Going to a company or individual with a high level of professional experience in what you need ensures a smoother loan process.

Step 3: Find a generalist

When no clear-cut expert exists for the loan you desire, you can find a loan Jack-of-All-Trades to assist you. Your bank or credit union is a logical place to start. Financial institutions offer a wide array of lending products to fit a variety of needs. If your financial institution is unable to assist you, they often have a list of partner companies they know can fulfill your lending needs at a fair interest rate.

Step 4: Ask a friend

Finding a loan doesn’t need to be a solo endeavor. Find out if family or friends recently obtained a similar personal loan. If so, obtaining a referral from a trusted source gives you the peace of mind that you will not only find the right loan, but a reliable lender. A good habit to get into is to always ask friends for the business cards of those who provided exceptional service. Even if you don’t need the service at the time, you’ll have a source of potential vendors when you’re ready.

Although there’s nothing wrong with using media advertisements to find a loan, make sure you do your own independent research on the loan type and lender in order to get what you need.

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How to Compare Loans

Finding a reputable lender is not your only concern before submitting a loan application. Make sure to compare loans carefully before you sign on the dotted line. Even within the same company, you may find that a different lending product better meets your needs.

Look at terms

To compare loans, you must understand the nuances of the terms. Is your rate fixed or variable? Can payments ever increase? Are you providing collateral or only a signature? Ask your lender to prepare a document with all the relevant information for the various loan products that fit your situation and start with these questions.

For instance, using a fully paid vehicle for collateral carries an additional cost as a result. Unless you already maintain full coverage insurance on the car, your insurance premium increases. This increase may eliminate the interest rate savings you gain by not using an unsecured personal loan product. Always think through the seemingly unrelated details affected by your loan choice to make sure you get the best loan possible.

Calculate savings

Introductory rates offered by financial institutions are tempting and effective ways to get you in the door. Read the fine print on the offer and do the math when you compare loans to see if the deal is as good as it looks. You may find a loan with a slightly higher rate is the better option.

Let’s say you have two loan offers to compare for a term of four years. Lender A is offering $10,000 at a flat rate of five percent, while Lender B offers $10,000 at an introductory rate of zero percent for one year and a go to rate of 10 percent. Paying no interest upfront sounds like a good deal, but what do the numbers say?

Using a simple interest calculation, Lender A charges $500 in interest for the funds. Lender B, on the other hand, receives an average interest rate of 7.5 percent, which equates to an interest cost of $750. Depending on the interest calculation method your lender uses, these numbers will vary. Always find out the total interest cost assuming no early prepayment and compare those figures in addition to interest rates and payments.

Think about benefits

Another factor when you compare loans is whether it offers additional benefits beyond the borrowed money. Mortgages, home equity loans and home equity lines of credit offer a potential tax savings on your income taxes for interest paid. Always consult your tax advisor before assuming you qualify for the deduction, but if you do, know that these tax savings can make a tax advantaged loan product more attractive than a regular personal loan.

Learning how to compare loans doesn’t have to be a lengthy process. Simply gather information on a variety of options and take the time to review each before making a final decision.

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Getting Out of Payday Loans

When you need a small amount of money for a short period, payday loans can be valid options. The problem borrowers run into is that short terms and high fees make these loans difficult to repay, forcing them to take out new loans each payday to cover the original amount. If you’re in this situation, it can feel like you’ll pay this loan’s high fees for the rest of your life, but there are simple steps you can take break the cycle for good.

Consult your budget

At this point, it doesn’t matter if you started using payday loans because of an expensive emergency or you weren’t managing your money in a responsible manner. Getting out of the payday loan cycle is your focus. Before you can do this, you must revisit your current spending habits.

Review your household budget and your bank statements to uncover areas of overspending. Even if you can only cut out $100 in expenses each month, that’s enough to make a dent in most payday loans and begin slashing the amount of fees you’ll pay from each paycheck. Maybe reviewing your spending means you’ll forgo eating out, cable or trips to the movies until you repay your payday loan debt, but the result is well worth the sacrifice.

Compare your loans

Depending on the expenses that led you to use payday loans, you might have multiple loans with various lenders if you were unable to get enough money from one. Fees for so many different high interest loans make it even more difficult to get out of debt, but it’s not impossible. Read all your contracts and find out which loan charges the highest fee per $100 borrowed. Make it your goal to repay that one first to save the most money.

Cut back on your borrowing

Just because your first payday loan was $500 with fees totaling $50 doesn’t mean you must borrow the full $500 each payday. In fact, some lenders will let you borrow money in $25 increments. Borrow as little money as you can afford at each check. For example, borrowing $400 instead $500 will cut your fees by $10, giving you $110 you don’t need to repay from your next check. Be diligent with your spending habits and chip away at your payday loans with every payment until your balance is gone.

No matter how you entered the cycle of payday loans, never forget that you can get out of this debt. As long as you make it a priority, you will succeed.

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Getting Low Interest Loans

No one begins the search for loans with the intention of obtaining the highest rate possible. While getting the amount of money you need is of primary concern, finding low interest loans is a close second on the priority list. To ensure you get the best possible deal, there are steps you can follow to make this desire a possibility.

Know credit management guidelines

Although no one can give you the exact model of building and maintaining a perfect credit score because the major credit bureaus hold that secret close to the vest, you can follow a set of credit management guidelines that will help you get low interest loans when you need them. The basics include:

• Make your payments on time, every time
• Use no more than half of your total available credit
• Maintain a good mix of credit products, including mortgage, auto and credit cards
• Keep your credit accounts open when you pay off the balance to help your debt utilization ratio
• Focus on credit longevity by using the same credit card for a number of years
• Never apply for credit and store charge cards when you already have enough to meet your needs

Understand credit scoring

Credit bureaus use the FICO score, named for the Fair Isaac Corporation that developed the scoring model. FICO scores run from 300 to 850, with 850 being the best possible score. While the goal is to reach the illustrious perfect score, excellent credit is generally in the mid- to high-700s. Anything below 600 constitutes a poor credit score.

Understand your credit file

The information contained within the file is just as important as the score when qualifying for low interest loans. High and perfect credit rarely features blemishes of concern, but average credit does. Your lender will take interest in:

• The amount and age of repossessions or foreclosures
• Whether you consistently pay bills late
• Collection activity
• If the amount of available credit is proportionate with your income
• Defaulted student loans
• Number of recent credit inquiries

Keep in mind that even individuals with stellar credit scores can make mistakes when applying for low interest loans that hurt approval chances. If a lender sees a dozen recent inquiries, but cannot determine if you’re shopping rates or obtaining accounts, they may offer a higher rate on the assumption you’re going on a spending spree you might not be able to repay.

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Getting Instant Loans at Tax Time

In the fast food society that wants everything yesterday, there’s a mystical appeal to products that give consumers something right then and there. The instant loans offered during tax season are no exception. Although these instant refund anticipation loans provide fast cash, they may not be the best alternative in your situation, regardless of the sales pitch.

Facts About Instant Loans

If you listen to the radio or watch television around the income tax filing deadline, you’ve heard the promise of walking into a tax preparer’s office and walking out with a check in hand. While instant loans might appear too good to be true, they’re 100 percent legitimate. They also carry a hefty fee for the convenience.

Without going into detailed specifics that vary by company, the gist is you’re borrowing against your own money. When the company prepares your income tax return and determines you have a refund coming, you get this instant cash option. Rather than waiting for the government to send you your full refund amount, the company offers you an amount less than your refund. In exchange for walking away with your money, you agree to let the government send the company your full refund, thus repaying your loan in full, including the fees. That’s why this instant loan is called a refund anticipation loan.

Alternatives to Instant Loans

If the idea of paying an effective interest rate in excess of 200 percent for the privilege of using your own money doesn’t appeal to you, there are alternatives to instant loans. Keep in mind that while you will not receive immediate benefit of the funds, you will enjoy the full amount due to you. In this case, patience is not just a virtue; it’s a money saver as well.

Take advantage of timesaving options available during tax season. You may be the kind of person who enjoys putting pen to paper when figuring your taxes, but mailing your return to the IRS takes extra time. Tax preparation software programs often come with a free eFile option. If using forms from the IRS website, you can often eFile without fee through the same site.

Use the direct deposit option. Again, waiting for a check to arrive in the mail is time-consuming. The IRS deposits refunds into accounts on Friday of each week after processing. As long as you beat the rush and file early, you can have your full refund within as little as two weeks. When it comes to the IRS, two weeks may as well be instant.

When you find yourself in a financial bind, instant loans from the tax preparer may be a better option than waiting the two weeks. Carefully weigh the advantages against the disadvantages to determine what’s right for you.

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Getting a Business Loan Using Personal Credit

Starting a business is a noble endeavor pursued by countless Americans each year. Unfortunately, it’s an expensive undertaking that causes most to seek a business loan to cover the unexpected expenses. For fledgling businesses, securing financing is not easy, but there are options available.

Business Loans

You can walk into any financial institution and find a department to handle the processing of your business loan. You’ll also find that business lenders require proof you’ve been in business and generating cash flows for a specified period. Once your business is up and running, securing a business loan or line of credit for operating and expansion expenses is a good option. In the beginning, however, it’s not an option at all.

Small Business Administration (SBA) Loans

The Small Business Administration is a government organization that funds businesses in the early stages of development. To qualify for an SBA business loan, you must prove you’ve done your research on the industry and found a viable customer base for your product or service. You’ll need a marketing plan, business plan and projection of income for the next seven years. If you plan to start a business in the same industry you’ve worked in for the last 20 years, you have a better shot at approval than a long time stockbroker looking to open a bakery.

Personal Loans

The most common method of funding your business is to obtain a personal loan for your business expenses. Some people try to use their personal credit cards for business expenses, while others take equity from their home to cover costs. You can outright get a personal loan for your business, but you must be careful in the way you do it.

For example, it’s inadvisable to walk into your bank and say you want to apply for a personal loan to start a business. For some financial institutions, it’s an automatic decline because you’re really applying for a business loan, not a personal loan. Other companies may view your request as high risk because there’s no guarantee you’ll make enough at the new business to repay the loan, especially if you quit your existing job.

By no means should you lie to your bank about the purpose of your loan when asked, but consider your words and the nuances of what you say. While you may be starting a business, are you really leaving your current job to work at it full-time? Or are you investing in a business opportunity in addition to your current employment. The difference is slight, but there is a difference. If you have a good relationship with your lender, talk openly about your plans and find out what lending options the bank has available for your situation.

Whichever route you go for your business loan, the point is to not get so bogged down in the details that you forget to start the business. The more you work at your business venture, the more options will become available to you.

When you need a business loan to pay for new business expenses, it’s difficult to get what you need. Rather than focusing on a specific kind of business loan, explore your options and use whatever’s available to you.

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Getting a Bank Loan

With its mahogany desks and polished marble floors, some borrowers find banks intimidating. Even if you have an excellent relationship with your banker, getting a bank loan is not always the easiest endeavor. Bankers must follow strict requirements set by the institution. Knowing what to expect when you apply and following three strategies is the best way to expedite your loan process.

Credit Requirements for a Bank Loan

In most cases, you need good credit to get a bank loan. Although most financial institutions have ties to finance companies specializing in bad credit loan options, your banker needs to see a credit score of at least 650 on the scale of 300 to 850. You may even need a score as high as 720 to qualify for favorable rates and less paperwork.

To have a more positive lending experience with your bank, pull a copy of your credit report on a regular basis. If it shows incorrect information, fix it. When you know you have blemishes on your credit, prepare a document explaining any extenuating circumstances. For example, a low credit score due to unpaid medical bills isn’t always viewed the same as a low credit score for poor money management. Providing this information upfront saves time because the underwriter won’t have to ask for clarification about the situation.

Collateral Requirements for a Bank Loan

Banks have some of the strictest guidelines to follow concerning collateral. Just because a used car qualifies for financing at the dealership doesn’t mean your bank can refinance the loan for you. Bank loans require vehicles to be no older than a certain age, usually five years, and have sufficient value to cover the loan plus their administrative costs. This means that a loan of $8,000 can require a vehicle value of $10,000 to allow the lender breathing room.

Before you visit your bank for a secured loan, investigate the value of your collateral. Remember to use the wholesale value rather than retail cost because banks sell cars and homes at auction in the event of repossession or foreclosure. If you feel your collateral justifies a higher loan amount than the wholesale value indicates, prepare to back up your claims with upgrade details or market comparisons.

Paperwork Requirements for a Bank Loan

Paperwork and documentation requirements are frustrating aspects of any bank loan. While you can understand the lender’s need to verify your income, the amount of documentation may feel excessive. As a rule of thumb, take two years of tax returns and your most recent paystub for loans exceeding $25,000. Your banker may not need it, but having everything ready at the time of applications saves you from digging through your files and faxing lengthy returns the following week.

It may never be easier to get a bank loan than it is a direct mail credit card offer, but following these few tips can help you enjoy as smooth a lending process as possible.

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