There’s no shortage of good reasons to apply for a personal loan. If you think this is the right financial tool for you, it’s important to answer a handful of key questions before completing an application and signing on the dotted line.

Here are five of the most important questions to answer before applying for a personal loan:

What are your plans for the money?

This is the first question to answer. Without this, you never really know if you’re making the right decision.

Some of the most common uses of personal loan funds include debt consolidation, home improvement projects, educational expenses, medical debt, and traveling. 

If you don’t have a solid plan for the money, it’s best to wait until you do. 

How much money do you want to borrow?

Once you know your plans for the money, it’s much easier to decide how much you want to borrow.

For example, if you’re renovating your kitchen, your contractor can provide you with a detailed quote. That makes it easier to decide how much you should borrow based on the scope of the project and how much cash you have on hand. 

Which lender is right for you?

There are hundreds of personal loan lenders. You can secure funds through a local bank, national bank, or even an online-only bank. 

Keep in mind that no two lenders are exactly the same. It’s best to compare three to five lenders to ensure yourself of choosing the right one. 

What term are you interested in?

There are three questions to help you answer this main question:

• How soon do you want to pay back your loan?
• How much money are you borrowing?
• How much can you afford to pay each month?

Once you answer these questions, it’ll become more clear as to which term best suits you. 

What steps can you take to secure a competitive interest rate?

The lower your interest rate the less money you’ll pay each month and over the life of your loan. If all else is equal, choose the lender that can offer you the lowest interest rate. 

Tip: take steps to boost your credit score before applying for a personal loan. This improves the odds of securing a competitive rate.

Summary

These are the types of questions you want to answer before applying for a personal loan. Doing so will clear your mind and help you make an informed decision that you won’t regret.

Do you have any experience applying for a personal loan? Would you add any questions to the list above?