When you need cash for a major purchase, a move across the country, educational expenses or some other unforeseen expense, a personal loan may be the way to go.
What is a personal loan?
A personal loan is a lump sum borrowed from a bank, credit union or online lender that is paid off in monthly installments. The interest rate of a personal loan will vary depending on your credit score and history, and the payoff time is usually between two and five years.
Typically more difficult to get than a home or auto loan, a personal loan is considered unsecured debt. This means that if you default on the loan, the lender can’t come take back the car or the house. The loan is only secured by your word, or really by your credit score and income.
Personal loans also differ from credit cards in a couple of ways. First of all, a personal loan usually provides more actual hard cash in hand than you can typically get from a credit card. However, the payment terms are quite different: credit card debt can be carried for years and is considered revolving debt. Essentially, you can take as long as you like to pay it back. A personal loan, however, has a set time limit and must be paid off during that term.
Before you apply
Do a bit of research before applying for a personal loan. First, find out your credit score. That number may determine the best places for you to seek a personal loan. You can check your credit score quickly and free of charge at several sites.
If you have excellent credit, a zero interest credit card might be even better for you than a personal loan. But if your credit score is high (FICO scores between 720 and 850), and you have proof of a good income, any bank, credit union or online lender will likely be happy to have you as a customer and offer you a good deal.
If your credit is is good, but not good enough to qualify for a zero interest credit card, a personal loan will likely provide a better interest rate than a credit card and you should still be able to get a decent rate, particularly if you also have proof of a healthy income.
An average credit score won’t prohibit you from getting a personal loan, but the interest rates you find will likely be higher. Again, proof of substantial income always helps.
Poor credit will make getting a personal loan difficult. Having a cosigner might help or a large income, but even if you’re able to qualify, the interest rate could be as high as 36 percent and origination fees and other factors may be unfavorable. That said, this is still a better option than a payday loan. Those should be avoided at all cost.
Where to apply
Once you’ve determined your credit score and what you may be eligible for, start shopping around for options. First, try your local credit union. They often offer the best rates because they are not-for-profit institutions. You must be a member at a credit union in order to get a loan.
Next stop, your local bank. If you have a good history with a bank, that may help your chances for approval.
Before you make a decision, also check online lenders. Many will give you a decent rate and the process can be quicker since you don’t need to visit a physical building.
Consumer Advocate, an organization which conducts independent expert reviews, lists their top-rated online lending companies.
Supermoney also has a long list of online lenders that includes reviews. You can quickly see what companies will work with your credit score and check your eligibility.
Lenders Accepting Bad Credit
|Lender||Min. FICO||APR Range|
|No Min||35% – 155%||Apply|
|580||9.95% – 36%||Apply|
|600||15.49% – 34.99%||Apply|
|600||5.99% – 35.89%||Apply|
|640||36% – 199%||Apply|
Best Personal for Good Credit
|Lender||Minimum FICO score||Estimated APR|
|680||1.99% – 14.49%||Apply|
|650||5.07% – 14.95%||Apply|
|660||5.99% – 35.89%||Apply|
|620||4.93% – 29.99%||Apply|
|580||9.95% to 36%||Apply|
Before signing on the dotted line
Make sure you read the fine print of any loan. You want to be certain that the payment terms work for you. Is the monthly payment manageable with your current budget? Is there a high origination fee? What are the penalties for late payments and is there a penalty if you pay off the loan early?
Also, you need to know if the interest rate of the loan is fixed or variable. A variable rate loan typically starts off with a lower rate, which can make it appealing, but this type of loan puts you at the whims of the market. By loan’s end, the interest rate could be much higher than when you started. A fixed rate may start with a higher interest rate, but you’re guaranteed that rate for the life of the loan.