Personal loans are on the rise, and it’s easy to see why. They’re not just for emergency cash anymore. Today, whether you’re looking to consolidate debt, fund a home renovation, or cover an unexpected expense, a personal loan can be a practical solution.
What’s really changed the game is the online lending boom. Now, getting a personal loan is faster and more accessible than ever. You don’t need a perfect credit score, either. Many lenders consider your whole financial picture – not just your credit history.
This shift means it’s crucial to get savvy about personal loans. They’re a powerful tool when used wisely. In this guide, we’ll dive into the essentials of personal loans, helping you understand how to use them to your advantage. Whether you’re a financial newbie or a seasoned pro, there’s something here for everyone looking to make smarter money moves.
What is a personal loan?
Most personal loans are unsecured, meaning you don’t have to offer any type of personal property as collateral to receive the funds. Lenders look at various factors to determine your loan offer, including your credit history and score; employment and income; and your current level of debt.
To get the best personal loan rates, you’ll need excellent credit; however, some new online lenders are changing traditional underwriting standards and instead weigh other factors more heavily, such as your education level or your payment history.
Either way, your personal loan APR is determined by the personal and financial information you submit in your application.
Selecting an online lender is both convenient and easy, but it does take some research to find the right one. No matter what type of personal loan credit score you have, there is most likely a lender available for you.
Most personal loan amounts range from $1,000 to $50,000, though some lenders go even higher than that. Not surprisingly, the higher credit score you have, the more money you’ll qualify to borrow.
Types of Personal Loan Lenders
When you’re in the market for a personal loan, it’s essential to know that not all lenders are created equal. In the diverse world of personal lending, three main types of lenders stand out: personal loan brokers, peer-to-peer (P2P) lenders, and direct lenders. Let’s break down each type to help you make an informed decision about which is right for you.
Personal Loan Brokers: Your Loan Matchmakers
What they are: Think of personal loan brokers as the middlemen of the lending world. They don’t actually lend money themselves. Instead, they connect borrowers with a range of lenders. You submit one application to a broker, who then scouts out multiple lending options for you.
- Variety of Offers: With a broker, you’ll get several loan offers with just one application, saving you time and effort.
- Easier Approval: Brokers can be a boon for those with less-than-perfect credit, as they can match you with lenders more likely to approve your application.
- Additional Fees: Some brokers charge fees for their services, which can add to the cost of your loan.
- Less Control: Since the broker is the intermediary, you might not have as much direct contact or negotiation power with the actual lender.
Peer-to-Peer Lenders: Community-Based Borrowing
What they are: P2P lending platforms are a modern twist on borrowing. They connect individual borrowers with investors willing to fund loans. Essentially, you borrow from another person or a group of people instead of a traditional financial institution.
- Potentially Lower Rates: P2P loans can sometimes offer lower interest rates, especially if you have a good credit score.
- Flexible Terms: These platforms often provide more flexible terms and conditions than traditional lenders.
- Variable Interest Rates: Some P2P loans come with variable rates, which can increase over time.
- Uncertainty: Since funding depends on individual investors, there’s a slight chance you might not get fully funded.
Direct Lenders: Straight from the Source
What they are: Direct lenders are the traditional players in the personal loan game. This category includes banks, credit unions, and online lenders that provide funds directly to you.
- Straightforward Process: Dealing directly with the lender often makes for a more straightforward process and quicker decisions.
- Potentially Lower Costs: Without middlemen, direct lenders can sometimes offer loans with lower fees and interest rates.
- Less Flexibility with Credit: Direct lenders may have stricter credit score requirements, making it harder for those with poor credit to qualify.
- More Research Required: You’ll need to shop around and apply separately to each lender, which can be time-consuming.
Each type of personal loan lender offers unique advantages and challenges. Your choice depends on your individual circumstances, including your credit score, how quickly you need the funds, and whether you prefer a more personalized or hands-on approach to borrowing. With this knowledge, you can better explore your personal loan options and find the one that meets your needs.
How to Get a Personal Loan
Getting a personal loan online is easier than ever, but that doesn’t mean you shouldn’t take the process seriously. There are several things to consider when selecting your lender and comparing loan offers.
Plus, there are ways to strengthen your application and accelerate the process. Let’s take a step-by-step look at how to get a personal loan, ideally with the best rates available to you.
Choosing the Right Personal Loan Lender
You don’t necessarily need to find a personal loan company near you, but you do need to make sure any lender you work with is eligible to do business in your state. Most reputable companies explicitly list any geographic restrictions they might have.
If a lender isn’t nationwide, it’s not a red flag that there’s something wrong with them, it’s just that each state has its own regulatory guidelines. Some lenders may inherently not qualify to do business there (such as payday lenders in some states) while others simply may not have launched throughout the country yet.
The Loan Application Process: What to Expect
Most personal loan applications are pretty similar, so once you prepare for one, you should have nearly everything you need in case you want to apply to another.
Many online lenders offer a pre-approval process where they only perform a soft check on your credit before giving you an offer. This lets you check several loan offers without damaging your credit report.
Once you find an offer that you like, it’s time to complete the full application. You’ll have to enter in your personal and financial information, including facts about your employment and income.
You’ll also need to provide personal loan documents, which could include a copy of your government-issued ID, along with financial documents to verify your information. This could include pay stubs, tax returns, and bank account statements.
It’s helpful to start gathering these documents together once you know you’re going to be applying for a personal loan. That way, you don’t have to slow down the approval process by digging through old files.
Evaluating Your Personal Loan Options
Once you apply for a personal loan, either through the pre-approval process or the formal application, it’s time to review your loan offers. Typically, you’ll see a minimum of a few different pieces of information, starting with your loan amount.
The amount you request isn’t necessarily the amount you’re offered, so don’t just gloss over that important detail. You’ll also see your APR, which includes your interest rate and any other costs such as an origination fee. This number is essential and helps you compare loan offers.
Another key piece of information you’ll receive is your loan term, or how long you’ll be making payments. Finally, you should see your monthly payment amount.
If you have a fixed rate loan, that amount will never change. However, if you choose a variable rate, it will change at some point depending on the nature of your personal loan agreement.
So, how do you compare your loan offers? A helpful tool to use is a personal loan calculator. You can see how much more you’ll save or spend in interest in choosing different loan options.
After all, even though one monthly payment is lower than another, it could still cost you more than a loan with a higher payment if it’s spread out over a longer period of time.
You may have to weigh the pros and cons of saving money over time versus saving money each month in your budget. If you’re a little more cash-strapped but need the personal loan for a necessity, it might be in your best interest to take a lower monthly payment over a longer loan term.
Personal Loan Options Available Online
Now that you know what kind of lenders there are and what to expect during the application process, you can now narrow down what types of personal loans you can expect to find online. There are loans for different types of uses, as well as different types of borrowers.
Common Uses for Personal Loans
Credit card debt is a huge issue in America these days, and this phenomenon has translated into an influx of debt consolidation loans. They’re one of the most popular types of personal loans, if not the most popular.
Debt consolidation can refer to several things, but when it comes to getting a personal loan, it means paying off your various existing creditors with the loan funds and then making a single payment each month.
While some people appreciate the added convenience of just one due date, the real point behind debt consolidation with a personal loan is to save money through a lower interest rate.
Other than debt consolidation, there are countless things you can use them for, so it’s wise to use your discretion over whether a particular purchase, project, or event is worth the expense. Weddings, medical bills, home improvement projects, vacations, and even adoption are all common uses for personal loans.
Personal Loans for Every Credit Profile
There are so many kinds of loans available online, almost anyone can find one regardless of credit. There’s just no guarantee over what kind of terms you’ll receive.
Obviously, if you have good or excellent credit, you’re likely to be eligible for the best loans. Low APRs, larger loan amounts, and flexible repayment periods are all at your disposal when you’re on the higher end of the credit spectrum.
But getting a personal loan with poor credit is also achievable, and many lenders actually focus on this type of borrower. Yes, you’ll pay more in interest, and you might be limited with how much money you can borrow at a time. So make sure that the reason behind your personal loan is a good one; really, it should be a necessity.
Otherwise, you put yourself at risk of damaging your credit even further, particularly if you already have other debt. That being said, it’s much easier to get a personal loan with bad credit through an online lender than your local bank or credit union.
Finally, many lenders also offer personal loans to those with no credit at all. Most frequently, these personal loan companies use alternative methods of underwriting to determine your creditworthiness. For recent graduates, they might look at your education, GPA, and future earning potential.
They might also consider your past payment history or employment history. These characteristics give them insight into your willingness and ability to repay the loan, even if your credit history isn’t very long.
Best Online Personal Loans
It’s true that there are personal loans designed for every type of borrower out there. To help you sort through all the options of online lending, we’ve developed a list of our five favorite personal loans.
We’ll get you started by showing you a bit of everything, so you can narrow down your choices quickly and efficiently. Whether you have great credit, average credit, poor credit, or none at all, there’s a lender focusing on your constituency.
Best Personal Loans for Good Credit
Good credit typically ranges between 690 and 720, with excellent credit being anything above that.
Since different lenders have different methods of judging applicants, it’s always good to shop around for the best offer, even if you have a great credit score. That way, you can find the one with the exact terms that work for your individual needs.
We’ve gone through dozens of online lenders to find the best ones offering personal loans for good credit.
Take a look at our top choices to learn more about what kind of loan terms each one offers, what they look for in an ideal borrower, and how you can apply. After each overview, you’ll also get links to more in-depth reviews so you can narrow down your favorite options.
Best Personal Loan for Bad Credit
Online lenders for bad credit do exist, even if you’re searching for a personal loan after bankruptcy or another major negative item. But you have to be careful to make sure you’re not signing up with a predatory lender.
While it’s unfortunate, it is vital to do even more due diligence with bad credit lenders than with any other kind because they know you have fewer options available to you.
There are also many scammers posing as online lenders that either attempt to get your financial information or have you pay fees for loans that don’t even exist. But don’t worry. We’ve scoured the Internet and created a comprehensive guide to the best reputable lenders offering personal loans with bad credit.