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Getting a personal loan might seem challenging at first. Maybe you need extra cash for an emergency, to pay off credit card debt, or to fund a big purchase. Whatever the reason, finding the right loan can feel overwhelming with so many options out there.
Personal loans are flexible and easy to apply for if you know what steps to take. Some lenders offer quick online applications with no hidden fees and funds as soon as the same day.
This post will guide you through everything you need, from learning loan types to applying successfully.
Ready to learn how? Keep reading!
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Types of Personal Loans
Many kinds of personal loans are available to suit different needs. Each type has its own rules, benefits, and risks.
Secured vs. Unsecured Personal Loans
Secured loans need something valuable, like a car or savings account, as collateral. Lenders can take it if you don’t pay back. These loans often have lower interest rates, but you risk losing your asset.
Unsecured loans do not require collateral. Approval depends on your credit score and income. Since lenders take more risk with these loans, they may have higher interest rates. Based on the lender’s policies, loan amounts usually range from $1,000 to $36,500.
Fixed-Rate vs. Variable-Rate Loans
A fixed-rate loan has the same interest rate for the entire term, so your monthly payments will stay the same. For example, SoFi offers fixed rates from 8.99% to 35.49% APR.
A variable-rate loan changes with market rates like the federal funds rate. Payments may go up or down over time. These loans can start lower but might cost more later if rates rise.
Debt Consolidation Loans
Debt consolidation loans combine multiple debts into one. This helps simplify payments and may lower your APR (annual percentage rate). They work well for credit card debt, personal loans, or medical bills.
SoFi has helped members pay off over $33 billion in debt through such options.
LendingTree reports that borrowers save an average of $1,659 when consolidating through them. Lower interest rates mean more savings over time, and these loans reduce stress from managing several accounts and due dates.
Always check fees like origination fees before applying to know the total cost.
Personal Lines of Credit
A personal line of credit works like a credit card. You borrow money as needed, up to a limit, and only pay interest on what you use. This option offers flexibility for ongoing expenses or emergencies.
Most lenders require good credit scores and proof of income. Interest rates can vary based on your creditworthiness. A bank account may be necessary for linking payments or withdrawals.
Avoid overborrowing to prevent fees or debt collection issues later.
Where Can You Get a Personal Loan?
You have many options to explore, from banks and credit unions to online lenders, each with pros and cons.
1. Traditional Banks
Traditional banks are a common choice for personal loans. They offer fixed or variable interest rates depending on your credit history and income. Most big names, like Wells Fargo Bank, N.A., provide loan options for U.S. citizens with clear terms.
If you prefer face-to-face service, visiting a branch helps.
Banks usually check your credit report before approving a loan application. To complete the process, you might need to show proof of identity, such as an ID card or a Social Security card.
Some banks give discounts if you set up autopay from your personal checking account. Keep in mind that funding can take longer than with online lenders.
2. Credit Unions
Credit unions often have lower interest rates than banks. They are nonprofit, aiming to help members instead of earning profits. You may find discounted loan rates and better terms if you join one.
To get a loan here, you must be a member. Membership may require living in certain areas or working specific jobs. PenFed offers personal loans with APRs between 8.99% and 17.99%. Loan terms range from 12 to 60 months, making payments flexible for your needs.
3. Online Lenders
Online lenders offer quick and easy loans without visiting a bank. Companies like SoFi provide personal loans from $5,000 to $100,000, while Upgrade offers between $1,000 and $50,000.
These platforms often use your creditworthiness for approvals and can give prequalification results without affecting your credit score.
Many online lenders run fully digital processes. You submit your loan applications on their websites or apps using simple forms. They may ask for identification details like your Social Security Number or proof of income.
If approved, funds are sent directly to your account within days. Some even offer autopay discounts when you set up automatic payments!
4. Peer-to-Peer Lending Platforms
Peer-to-peer lending connects you directly with investors. You borrow money without using a bank or credit union. Platforms like LendingClub offer loans from $1,000 to $40,000. Prosper provides rates between 8.99% and 35.99% APR.
This option works well if you have fair credit but need fast approval. Investors fund your loan in small amounts, splitting the risk. Fees may apply depending on the platform’s terms, so check details before applying.
Always review repayment plans to avoid late penalties or extra charges later on!
5. Loan Marketplaces
Loan marketplaces bring multiple lenders together. You can compare loan offers in one place. Platforms like LendingTree let you see up to five trusted lenders at once. This saves time and helps you find lower rates or better terms.
These platforms often include loans from banks, credit unions, or online lenders. Some cap personal loans at $50,000, like LendingTree does. Use them to check pre-qualification without hurting your credit score.
They give you a clear way to shop for the right financing option for your needs.
Step-by-Step Guide to Getting a Personal Loan
Getting a personal loan takes planning. Follow these steps to make the process smooth and stress-free!
Step 1: Check Your Credit Report
Check your credit report first. Look for errors, like incorrect late payments or balances. Mistakes can lower your credit score, but fixing them may boost it.
Request free reports from the three major credit bureaus: Experian, TransUnion, and Equifax. You get one free each year at AnnualCreditReport.com. A higher credit score helps you qualify for better loan rates and terms.
Step 2: Determine Your Loan Purpose and Amount
Decide why you need the loan. Common reasons include paying off unsecured debt, covering emergencies, or making large purchases. Some lenders, like SoFi, don’t allow loans for post-secondary education costs.
Make sure your plan fits the lender’s rules.
You can borrow amounts from $5,000 to $100,000 based on your needs and repayment ability. LightStream offers amounts from $5,000 to $100,000. Borrow only what you can manage comfortably to avoid late payments or penalties like prepayment fees.
Step 3: Shop Around and Compare Offers
Check offers from banks, credit unions, and online lenders. Each lender has different rates, fees, and terms. Peer-to-peer platforms can also give competitive options.
You can see up to five trusted offers at once using tools like LendingTree. Through this system, borrowers save an average of $1,659. You can also compare costs like interest rates, prepayment penalties, or hidden fees.
Look for fixed interest loans if you want steady monthly payments.
Step 4: Prequalify to See Potential Rates
Find lenders that let you prequalify without a hard credit check. Many online lenders and banks offer this option, which allows you to see rates, terms, and monthly payments before applying.
Upgrade’s APR ranges from 7.99% to 35.99%. Upstart offers lower starting rates at 6.60%, but both may vary based on your credit score and income. Prequalifying helps avoid unwanted surprises while allowing you to compare loans easily.
Step 5: Gather Required Documents
Prepare all important documents before starting your application. You will need proof of identity, like a government-issued ID or Social Security number. Ensure you have recent pay stubs and tax returns to show your income.
Some lenders may ask for bank statements and employment verification. If applying through a credit union, you might need proof of membership. Ensure your physical address, email address, and internet access are ready for easy communication.
Step 6: Submit a Formal Application
Fill out the application online or in person. Double-check all details before submitting. Many lenders, like SoFi, offer fast processing if you complete the step early in the day. For example, 83% of SoFi loans are funded on the same business day when signed by 6 PM ET.
Please include all required documents to avoid delays. These might include your ID, proof of income, and credit history reports. With Rocket Loans, signing by 4 PM ET can also lead to same-day funding.
Submitting accurate information helps prevent issues during underwriting.
Step 7: Review the Loan Agreement
Read the loan agreement slowly. Check for your interest rate, APR, fees, and payment terms. For instance, SoFi’s rates vary from 8.99% to 35.49% APR, while LendingClub offers 7.90% to 35.99%.
Spot hidden fees or penalties, such as prepayment or late fees. Make sure these rules match what the lender told you before applying. Look at words like “simple interest” to avoid surprise costs linked with predatory loans or payday lenders.
Review privacy details for security concerns about behavioral advertising or cookie tracking of your data!
Step 8: Accept the Loan and Receive Funds
Review the loan offer carefully. Check interest rates, fees, and repayment terms to ensure everything matches your earlier agreement.
Once satisfied, accept the loan. If Cross River Bank or other lenders approve, funds could reach your account quickly. Some lenders like SoFi might fund up to $33,000 on average in 2023! Use these funds wisely for your planned purpose.
How to Qualify for a Personal Loan
Lenders check your credit score, income, and debts. Find out what they look for next!
Credit Score Requirements
Your credit score affects your loan approval. Many lenders set a minimum score to qualify. For example, SoFi needs at least 680. LendingClub accepts scores as low as 600.
Higher scores get better rates and terms. If your credit is poor, you might face higher costs or need a co-signer. Check your credit report before applying to avoid surprises.
Income and Employment Verification
Lenders will ask for proof of your income. This could include pay stubs, tax returns, or bank statements. They use this to make sure you can repay the loan without issues. Some lenders, like Discover, might need you to earn at least $40,000 yearly.
With LendingPoint, it could be $35,000.
Employment checks are also common. Lenders verify where you work and how stable your job is. A debt-to-income (DTI) ratio under 50% may help you qualify more easily. Always provide accurate documents to avoid delays in approval.
Debt-to-Income (DTI) Ratio
Your DTI ratio shows how much of your income goes to debt payments. You calculate it by dividing monthly debt payments by gross monthly income. For example, if you pay $1,500 in monthly debts and earn $5,000 before taxes, your DTI is 30%.
A lower DTI improves loan chances. Most lenders prefer a ratio under 36%. If your debt is high, reduce it before applying. Paying off credit cards or refinancing loans can help lower this number.
A lower DTI may also mean better interest rates on personal loans.
Collateral (for secured loans)
Secured loans need collateral. This means you must pledge an item of value, like a car or home. Lenders use this as security in case you don’t repay. For example, with auto loans, the car is the collateral.
Lenders can take back (or repossess) your collateral if you fail to make payments. Always review loan terms before agreeing. Be careful about risking valuable assets for funds when other options might work better!
Tips to Increase Your Chances of Approval
Boosting your approval odds starts with improving your financial profile. Small changes like lowering debt or fixing credit errors can make a big difference.
Improve Your Credit Score Before Applying
Check your credit report first. Look for errors or accounts you don’t recognize. Fixing mistakes can boost your score fast. Make payments on time every month; late payments hurt credit histories badly.
Pay down as much debt as possible before applying. A lower debt-to-income ratio makes lenders more likely to approve you. If your score is below 600, improve it to qualify for better rates with companies like LendingClub.
Aim for at least 680 if applying through SoFi for better options and pricing.
Reduce Existing Debt
Paying off some of your current debt first can help you qualify for a better loan. Lenders check your debt-to-income (DTI) ratio. A lower DTI shows you can handle payments well.
Focus on high-interest loans or credit card balances. Cutting down these debts frees up money and improves your credit score. Platforms like LendingTree report borrowers saving $1,659 on average by consolidating their higher-interest debts into one personal loan.
Apply with a Co-Signer (if applicable)
A co-signer can help you qualify for a personal loan. They agree to share responsibility for the loan if you cannot repay it. This works well if your credit score is low or your income is insufficient.
Lenders like SoFi allow co-borrowers anytime, giving you more options. Upgrade also accepts joint applications, which can improve your chances of approval. A strong co-signer with good credit may lower interest rates and unlock better terms for you, too!
Choose a Loan Amount You Can Realistically Repay
Pick a loan amount that fits your budget. For example, lenders like Upgrade offer loans starting at $1,000, while SoFi provides up to $100,000. Only borrow what you truly need and can manage each month.
Look at your income and expenses. Check if payments fit into your current spending without causing stress. A smaller loan reduces the risk of late payments or defaults, which can hurt credit reports or lead to debt collectors calling.
Always avoid borrowing more than necessary just because it’s available!
Pros and Cons of Personal Loans
Personal loans can help with significant expenses or emergencies, but they come with risks. It’s smart to know both the good and bad sides before making a choice.
Benefits:
You can use a personal loan for many things. It helps with debt consolidation, home improvements, or even travel plans. Borrowers may get flexible amounts from $5,000 to $100,000. You won’t always need collateral if you apply for an unsecured loan.
Low fixed interest rates start at 8.99% APR for qualified applicants. The process is simple, online, and is in just three steps. Checking rates won’t hurt your credit score either! Improving your credit first could also secure better terms and save money later on repayments.
Debt Consolidation
Debt consolidation loans combine multiple debts into one. This makes repayment easier and can lower your interest rate. SoFi has helped members pay off over $33 billion in debt. Borrowers using LendingTree save an average of $1,659.
These loans work well if you have high-interest credit cards or personal debts. They streamline payments into a single monthly amount. Some options are secured, meaning they need collateral, while others do not.
Always check the terms before applying to avoid fees or risks like predatory lenders targeting those with bad credit.
Financing Emergencies or Large Purchases
Emergencies and big purchases can cost a lot. You might need money fast for car repairs, medical bills, or home fixes. A personal loan can help cover these costs without using savings.
LightStream offers loans from $5,000 to $100,000. LendingPoint has smaller options starting at $1,000.
These loans give you a lump sum quickly. Use it wisely and focus on what’s urgent or important. Check interest rates before borrowing to avoid high fees later. Unsecured loans are helpful since they don’t require collateral, such as a car or house, to be used as backup payments.
No Collateral Required (for unsecured loans)
Unsecured loans don’t need collateral, like a car or house. This makes them safer if you can’t risk losing personal assets. Instead of collateral, lenders focus on your credit score, income, and debt-to-income ratio.
These loans often come with higher interest rates than secured ones. This happens because the lender takes on more risk without repossessing anything if you default. You can use unsecured loans for many purposes, including emergencies or consolidating debt.
Companies like LendingTree offer such options to borrowers with good financial profiles.
Risks:
High-interest rates can trap you in debt. Borrowers with poor credit often face rates that are hard to manage. Origination fees, sometimes up to 9%, may lower the money you receive from the loan.
Missing payments harms your credit and adds penalties. Taking new loans to repay old ones creates a cycle of debt. Some lenders also charge high fees for late payments or overdrafts.
Always compare lenders and read terms carefully to avoid surprises.
High Interest Rates for Poor Credit
Lenders charge higher interest if your credit is poor. They see it as a bigger risk. Rates can go up to 35.99% with lenders like Upstart. This means you pay more over time, making the loan expensive.
LendingTree considers loans with APRs below 36% affordable. If your rate is above that, try improving your credit first or looking for better offers. This will help you save money on interest and fees in the long run.
Fees and Penalties
Fees can add up fast. Many lenders charge origination fees. Upgrade charges range from 1.85% to 9.99%. Best Egg charges from 0.99% to 9.99%. These are taken out of your loan amount before you get the funds.
Late payments bring penalties, too. You may face extra costs if you miss due dates or pay late repeatedly. Some loans even have prepayment penalties, so read your loan terms carefully before signing anything!
Potential for Debt Accumulation
High-interest rates can make personal loans more expensive. Borrowers with poor credit often face higher rates, which increase repayment amounts over time. Origination fees also add to the total loan cost and affect your budget.
Taking on too much debt can lead to trouble. If you miss payments or keep using credit cards after getting a loan, your debts may pile up quickly. Failing to shop around for lower interest rates might put you at risk of overspending in the long run.
What to Do After Receiving Your Loan
Use the money for its intended purpose. Plan your payments to avoid extra fees or missed deadlines.
Use the Funds Responsibly
Pay your bills or cover emergencies with the loan. Avoid spending on things you don’t need, like luxury items or vacations. Stick to the purpose you decided when applying for the loan.
Understand all borrowing costs, including fees and interest rates. Make timely payments to protect your credit score and avoid penalties. If repayment becomes difficult, contact your lender immediately for help.
Create a Repayment Plan
Set up a clear payment plan right away. Use loan calculators to check which monthly amounts fit your budget. This will help you avoid late fees and keep you on track.
Review your loan terms carefully, like the interest rate and extra fees. Adjust your plan if your money situation changes later. Avoid getting new credit card debt while paying off this loan.
If you struggle with payments, contact the lender or ask about changing the loan terms.
Set Up Automatic Payments
Choose automatic payments to avoid missing deadlines. Many lenders offer discounts for this, like SoFi’s 0.25% interest rate cut or LightStream’s APR discount. These savings lower your loan cost over time.
Link your bank account to set it up quickly. The ACH Network processes the transactions securely each month. Automatic payments also help you avoid late and overdraft fees if enough funds are available in your account.
Keep track of payment dates and ensure sufficient funds remain in place for smooth processing.
Final Thoughts
Getting a personal loan can seem tricky, but it doesn’t have to be. You now know the types of loans, where to find them, and how to apply step by step. Use these tips to improve your chances and pick the right loan for you.
Borrow only what you need and plan your payments carefully. Taking smart steps today can lead to better financial options tomorrow!
