While there’s no universal ‘good time’ to take out a loan, there are times where it may make more financial sense. Aside from individual finances alone, you also need to consider the current economic climate and interest rates to decide if it’s a good time for you to take out a personal loan.
Key takeaways
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The best time to get a personal loan will look different for every borrower.
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Interest rates are historically high, so unless absolutely necessary it may be best to hold off on applying.
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It may be a good time to take out a personal loan if you have an excellent credit score, are in good financial health and prequalify for a competitive interest rate.
When to get a personal loan
Despite the turbulent economic climate and historically high interest rates, some consumers are more well suited financially for a personal loan than others. Factors like your credit score, annual income and credit history are often used by lenders as requirement criteria.
If you fall into the following financial categories, a personal loan could be a good tool to fund your next purchase, project or life event.
You have a very good credit score or above
According to the FICO credit model — the scoring that most lenders use — a very good score is anything above 740. While lenders may accept a lower score, it’ll be harder to get approved right now and if you do, you’ll likely get stuck with a high rate.
You have an established repayment history
Given that lenders are tightening requirements to avoid risk, a long history of positive loan and credit repayment is likely going to be required. Your credit report includes every reported payment you’ve made, missed or were late on for up to the past seven years. If your credit history is thin or shaky at best, a lender is more likely to pass on your application right now.
You have a low debt-to-income ratio
Your debt-to-income (DTI) ratio is the percentage of your monthly debt payments divided by your gross monthly income. Lenders often see higher DTI as potential default risk, and some lenders or banks require a DTI below a certain percentage. However, if yours is below 36 percent, you’re among those who may want to consider a personal loan.
Your annual income is steady and sufficient
Some institutions require a minimum income for approval, but not all lenders have a specific amount requirement. Generally, the higher your income, the more likely you are to get approved and most lenders allow for the applicant to input multiple streams of income as long as they provide the proper documentation to back it up.