You’re in way over your head financially. You’re considering asking for a loan to consolidate your debt. You want to buy a new home or car. Whatever your reason for wanting a personal loan and before you decide your best option, understand that a loan, regardless of the type, involves borrowing money and having to pay it back with interest.
If you’re looking to get a personal loan, here are our best recommended personal loan companies with reviews.
Different Types of Personal Loans
Personal loans are not one-size-fits-all. There are several options. Personal loans include:
- Convertible loans
- Fixed-rate loans
- Installment loans
- Payday Loans
- Personal Loans
- Online Loans
- Secured loans
- Single-payment loans
- Unsecured loans
- Variable-rate loans
Each loan type serves a purpose, so it is important to understand how to obtain the best type of loan for your individual situation.
Normally used for business, convertible loans allow lenders the option to convert the outstanding principal of the loan into an equity position in the borrower’s company, which over time, may be worth more.
Most personal loans are fixed-rate loans. The interest rate remains constant, so you pay the same amount every month until paid in full. Most homebuyers look for fixed-rate loans when they purchase a home. Though the interest rate is higher than with an adjustable-rate home loan, this type of home mortgage offers more security.
These are what most people think of when they think of a loan. You borrow a set amount of money and then repay it along with interest at regular intervals over a set period. These loans typically finance homes, cars, and other expensive items. Some of the leading online lenders for installment loans include Sofi, LendingClub, and Prosper.
In general, payday loans (sometimes called cash advances) are one of the most expensive borrowing options, charging extremely high interest rates and excessive fees. They are a small, short-term loan secured against your next paycheck and are typically used for emergencies only.
A secured loan is such because you offer an asset, like a home or car, as collateral to guarantee repayment of the loan. If you fail to pay, the lender takes your asset. Home equity and standard car loans are examples of secured loans.
Single Payment/Bridge/Interim Loans
The single payment loan has many names, including bridge loan and interim loan. Generally, a single payment loan is used for short term, temporary financing and is repaid with interest in one lump sum at the end of the term. Payday loans are examples of a single-payment loan.
Unsecured or signature loans do not require collateral. With the right kind of credit history, your mere signature guarantees this type of loan. Unfortunately, they have a high interest rate due to the high level of risk. Credit cards are the best example of an unsecured loan.
Variable-rate loans are riskier for consumers than fixed-rate loans because the interest rate adjusts at different intervals throughout the life of the loan based on the market. However, the maximum interest rate a lender can charge is limited (capped). It is generally easier to get an adjustable loan, and the initial interest rate is typically lower. The most common variable-rate loan is the ARM (adjustable-rate mortgage) for homebuyers.
Securing a Personal Loan
If you’ve read this far and have decided that a personal loan is right for you, there are steps you need to take before you get cash in hand.
- Make sure your credit is good by obtaining a copy of your credit history. Review it carefully and fix any problems (such as outstanding debt or errors in the report) immediately.
- Check out your credit score (760 or higher gets you the best deal). You can get FICO scores and credit reports at www.myfico.com (consumer division of Fair Isaac Company). You can also ask a lender where you’ve recently submitted a loan application, though they might not provide it.
- Shop around for a lender. Some suggest shopping local (like the corner credit union) before contacting the larger institutions.
- Compare lenders’ annual percentage rates, called APR. This is the annual rate of interest you pay for a loan.
Applying for a personal loan is a big step. Before you take any action, make sure you fully understand your options as well as the advantages and disadvantages of borrowing.
Where to get the best personal loans from?
Getting a personal loan is fairly easy but sure tricky a process. There are several factors to consider before saying yes to a lender. One thing to be mindful of is to ask for reviews and opinion from people who’ve already taken personal loans from the banks/firms you’re applying to. We have a big list of personal loan lenders & reviews from who have used them already. Check it out!
Also check out, Installment Loans, that will help you get loans faster and at smaller monthly payments.