Put yourself in the driver’s seat when it comes to reducing money-induced stress in your life. Imagine the faucet in the tub accidentally ran all day.
You return from work to a flooded mess. Your savings are tapped out.
You need a loan – and fast, and you’ve chosen a personal loan as an option. And you wonder how do you get the best personal loan?
A personal loan is a general purpose loan that you can use for things like consolidating debt, unexpected medical expenses, or fixing that pesky faucet. They are typically short-term (one to seven years) with a fixed interest rate and generally range from $5,000 – $35,000.
Next thing you will have to think about is whether you want your loan to be secured or unsecured.
The APR is the cost you pay for borrowing money, calculated on a yearly basis. It includes the interest rate and any additional fees. By law, a lender is obliged to display the APR.
Therefore, it is your responsibility to research the available options. It is of critical importance that you analyze, compare, and estimate the APRs of the loan options you consider to apply for. The best personal loan in terms of cost won’t enter your account by itself. To help you do the math, we prepared such an example:
When choosing a personal loan, you will need to understand how do rates, fees and penalties work as well. An origination fee, or upfront fee when you sign, ranges usually between 1% – 6% of the loan amount. Some lenders penalize borrowers for paying early. An you might as well incur a prepayment penalty or an exit fee. However, if exit fees are part of your loan package, it must be stated upfront.
The number one reason a loan is rejected is poor credit. Your credit score is the indicator used by lending institutions, insurers and landlords to assess your financial reliability. Do not ignore your score, as it takes years to build a good credit history. CreditKarma and CreditSesame let you view TransUnion and Experian scores for free. However, be ready to put up with ads along with your score.
According to the statistics:
The table below reflects the credit score ranges. You can use it to see where do you stand, and after you have determined what type of credit you have, to see what should be done next.
|Type of credit||Level of credit|
|Bad Credit||< 600|
Your credit report is a run-down of how you pay bills and other debts, and the timeliness of your payment history. The three main credit bureaus – TransUnion, Experian, and Equifax must provide a copy (at your request) of your credit history once every 12 months. See Annualcreditreport.com for info. You have all the available instruments to monitor your credit regularly and address issues in real time.
Don’t panic if you find an error! It’s your responsibility to report inaccuracies, in writing, to the company who provided the report. Next, inform the creditor that you are disputing the item. In case you are being mistreated by a creditor or lender, just contact the Consumer Financial Protection Bureau.
You must have a verifiable income to qualify for a loan, and get the best deal. The underwriting process looks at your income, credit score and repayment history.
In fact, lenders calculate your ability to repay your loan by comparing your current debt to your current income. To do this, they use the Debt-to-Income Ratio (DTI). This indicator will show them to which extent you are currently indebted, and whether you can take out any other loans. Your chances to get a loan are higher if you have a DTI lower than 43%.
Apart from choosing the loan that best suits your needs, choosing the lender is not an easy task as well. Especially given that there is a wide variety of institutions keen to borrow you some money. Online lenders, credit unions or brick-and-mortar banks are the most common choices. Let us have a detailed look on them.
Online lending platforms connects borrowers and lenders online. Upon approval, funds can be in your account in a short period of time. When choosing a lender from this category, ceck the platform’s rating with the Better Business Bureau. Ensure the platform has security certification such as TRUSTe or Symantec.
BEST FOR: Fast access to funds.
If online lending is too nameless and faceless for you, relationship banking still exists. But doing business with a credit union requires that you join. Be aware that Credit unions conduct hard inquiries on your credit (inquiries that affect your credit).
BEST FOR: Medium to low credit scores.
Banks are for-profit businesses. They are more tech-savvy than credit unions and less relationship-centric. Expect traditional banks to offer lower interest rates but higher fees than credit unions.
BEST FOR: Branch banking.
Don’t give up if your credit is less than stellar: try applying for a secured loan or ask a co-signer with good credit to help you out. Watch that APR. If your credit score is low, expect a high APR (up to 36%!) even for secured loans.
BEST FOR: Situations when you have bad credit.
Conduct due diligence: shop and compare before signing for a loan. Remember, you are in the driver’s seat if you have good to excellent credit.
Opt for the lowest rates.
Work on improving your score.
Stay on top of your credit history.
Dispute errors in writing to the credit bureau.
Watch for online scams.
Protect your privacy to avoid identity theft.
Don’t feel powerless!
Turn to the Consumer Financial Protection Bureau or the Better Business Bureau.
1 StudentLoanHero “10 Easy Ways You Can Find the Best Personal Loan Rates” https://studentloanhero.com/featured/personal-loan-rates-easy-ways/
2 NerdWallet “How to Get an Unsecured Personal Loan” https://www.nerdwallet.com/blog/loans/cheap-personal-loans/
3 Finder “Help me choose a personal loan” https://www.finder.com.au/choose-personal-loan
4 Mozo “Online personal loan – a guide to choosing an online lender” https://mozo.com.au/personal-loans/guides/online-personal-loan-a-guide-to-choosing-an-online-lender
Lara started her journey at the University of Florida. After completing her studies years of practical experience followed. Today she is known as a finance and money expert—that person you can call when your budget seems too overwhelming or you need advice on planning for the future.