Guide to Securing a Personal Loan
Are you in need of some money? Whether you're looking for small personal loans or large ones, a personal loan might be exactly what you need to get an extra boost. Personal loans can help you pay for a necessary medical expense, make a repair on your home or pay for a wedding.
Whatever your reason for needing the money, a personal loan could be a good fit, so long as you have a plan in place to pay it back.
Qualifying for a Personal Loan
In order to qualify for a personal loan, the bank or lending institution is going to check your credit. The higher your credit score, the better your chances are of qualifying for a high personal loan amount.
Those that carry a high credit score will also qualify for lower interest rates and more flexible repayment schedules. To improve your credit score, pay all of your bills on time, keep balances low on credit cards and work toward paying off your debt rather than moving it around.
Types of Personal Loans
The two main types of personal loans are secured personal loans and unsecured personal loans.
Secured Personal Loans
Secured personal loans are backed by collateral-such as your house, your car, jewelry or artwork. If you were to default on the loan, the lender could take possession of your collateral. Because of this, secured loans are not as risky as unsecured loans and usually come with a lower interest rate.
Personal Unsecured Loans
The other main type of personal loan is a personal unsecured loan. An unsecured personal loan is not backed by collateral and is therefore more risky of a loan. Lenders typically charge a higher interest rate for these types of loans and will require a good credit score. If your credit score is not up to par, you could consider getting a cosigner on the loan. Keep in mind, though, that if you were to default on the loan, the cosigner would be responsible for paying it.
Other types of Personal Loans
- Short term personal loans. Short term personal loans are loans that are paid back in a shorter period of time, usually between three and five years. Applications are typically approved quickly, making this type of loan perfect for those in need of a small amount of cash in a short amount of time.
- Guaranteed personal loans. Guaranteed personal loans are specifically designed for individuals with less-than-stellar credit. Lenders will look at your current financial situation-most importantly, your current income-to determine how much of a loan you will qualify for. Because the lender doesn't take your credit history into consideration, fees and rates are typically higher on these types of loans.
Where to Get a Personal Loan
Banks or Credit Unions
When most people think of getting a loan, they think of visiting their local bank or credit union. It's always a good idea to shop around when looking for a personal loan, and banks and credit unions will sometimes offer better rates to long-time customers. Credit unions are typically able to offer lower loan rates to their members because they are a not-for-profit organization.
Online Personal Loans
Another avenue of getting a personal loan is through online peer-to-peer lending, such as Prosper or Lending Club. Peer-to-peer lending sites are a trusted way to connect borrowers and investors. Typically, high credit scores are required and the loans can take longer to be approved than with a traditional bank.
Before getting a personal loan, it's important to consider all of your options-including zero-percent interest credit cards, borrowing from friends or family members, or saving up the money until you can afford to pay cash. If those options are not possible, personal loans comparison to make the most informed decision on which type of personal loan is best for your individual situation.
Current Personal Loan Rates
As with any loan, you will pay interest on your personal loan. Your terms, loan amount and credit score will all affect what interest rate you will qualify for. The lower the rate, the less you'll pay in interest and overall for the loan.
LendingClub, a peer-to-peer lending site, offers some of the most competitive personal loan rates in the industry. Starting as low as 5.99%, LendingClub offers borrowers loans up to $40,000 and charges fewer fees than most banks. It might take longer to be approved, though, so make sure to plan accordingly.
Personal Loan Term Recap
It's always in your best interest to pay off debt as quickly as possible. That being said, you don't want to wind up in more debt because your personal loan monthly payment is just too big for you to take on. The key is to find a happy-medium. Choose a personal loan term that works with your schedule while also allowing you to pay it off in as short amount of time as possible.
As a reminder, don't forget to read the fine print in regards to paying the loan off early (some lenders will charge a prepayment penalty), what happens if you make a late payment and more. As always, a personal loan should be a last resort. Look at all of your options, including zero-percent interest credit cards, borrowing from a family member and old-fashioned saving, before agreeing to a personal loan.