Anyone can find themselves in a situation where they need more money than they have available. When this happens, many people will look to get a personal loan to meet their financial needs. The following article looks at the topic of personal loans and examines what you should know about them before starting the loan process. 

Reasons 

You might require a personal loan for several reasons. For instance, if you have an outstanding debt with a number of creditors, such as credit card companies, it could make sense to take out a personal loan to consolidate your debt. A debt consolidation loan allows you to focus on paying only one creditor instead of multiple creditors. Another example is getting a personal loan for home repair or renovation, which lets you improve your home and increase its value. Other common reasons for seeking a personal loan include paying off medical bills, covering the cost of a move, paying for a wedding, and purchasing a vehicle.

Credit Score

Lenders will look at several factors to determine if they will offer you a personal loan. Probably the most important of these is your credit score. You will usually need a FICO score of at least 690 or better to have an excellent chance of getting your loan approved. Depending on the lender's specific policies, however, you might be able to get a personal loan with a lower score. 

Your credit history is another key factor in the lender's decision. You will typically need a history of at least two or three years of good credit to receive approval. If you have a solid record of paying your debt obligations on time over several years, this should help increase your chances.

Lenders will also check your debt-to-income ratio, which is expressed as a percentage of your monthly payment obligations in relation to your gross monthly income. Lenders are usually looking for a debt-to-income ratio of less than 50 percent. 

Other Considerations

One of the critical things to look at before agreeing to any personal loan is the annual percentage rate or APR. As a rule, the higher your FICO score, the lower your APR. A lower APR means that the loan will cost you less to pay back in full. Also, make certain the monthly payment is something that is within your budget. 

To learn more about personal loans, contact a local loan service.