Are you looking for a personal loan but don't know where to start? By the end of this article you'll understand what they are, why your credit score matters, where to shop for the best rates, and how to compare personal loans to find the best one for your needs.
Getting a personal loan is not complicated once you understand the basics. And, what's great is you can conveniently compare the low rates online with top lenders in just minutes with Credible.
Personal Loan Basics
First, let's go over the basics of personal loans. Nearly 22% of U.S. adults have a personal loan according to the credit bureau Experian.
But, what exactly is a personal loan? A personal loan lets you borrow a certain amount of money from a lender that you then pay back in monthly installments over the course of a set number of years.
The time period, aka loan term, of personal loans is typically in the range of 1 to 7 years. The monthly payments are comprised of equal portions of the loan amount plus interest and fees.
What Can You Use A Personal Loan For?
There are many reasons why people take out personal loans, highlighted below. It's also important to note that certain lenders have restrictions on how the funds are used. Loan rates can also vary by purpose. So be prepared to disclose how you plan to use the money when you apply.
Here are some common examples of what you can use a personal loan for.
- Consolidate debt from multiple accounts into one loan
- Refinance expensive credit card debt
- Pay for medical or dental bills
- Home repair or remodeling
- Career development
- Starting a business
- Auto repair or financing
- Moving expenses
- Unexpected emergencies
Related reading: Credit Cards vs Personal Loans: Which Is Better?
Why Your Credit Score Matters
When applying for any line of credit, whether it be a credit card, mortgage, personal loan, etc., your credit score is analyzed when a lender is deciding to approve or reject your application.
The higher your credit score, the more likely your application will be approved and the more favorable loan terms you can access. This translates to lower interest rates, fewer fees, and higher lines of credit.
Credit scores range from:
- Very Poor (300-579),
- Fair (580-669),
- Good (670-739),
- Very Good (740-799), and
- Exceptional (800-850).
If your credit score is on the low side, I highly recommend you check out this article: How To Improve Your Credit Score To 800 And Higher.
If you have poor credit, you can still get approved for a personal loan. However, you may not be able to access the top lenders or low rates. The lowest minimum credit score for most personal loans is 580. In addition, if you don't want a co-signer on your loan, you may have to get a personal loan.
Secured loans require collateral such as a home or car that can be used as payment to the lender if you stop making regular payments on your loan. Alternatively, a local credit union may have lower requirements for approval. Loans that do not require collateral are known as unsecured loans.
Fixed APR Verus Variable APR
APR stands for annual percentage rate. This determines how expensive it is to borrow money. The APR includes the loan's interest rate and any fees. When comparing personal loans, pay attention to the type of APR loans offer. There are two main types – fixed and variable.
A fixed APR doesn't change. So the rate you see is the rate you will pay for the entire length of the loan. Your monthly payments will be the same each month, which can be helpful when planning your budget.
On the other hand, variable APRs can change with the market. Although you may access a lower rate in the beginning of the loan, it could increase later on meaning your monthly payments could get larger before the end of the loan.
Most personal loans offer fixed APRs whereas the majority of credit cards have variable APRs. In addition, the interest rates on personal loans are typically lower than those on credit cards. Thus, using one for debt consolidation can be a good way to lower your interest expenses and pay off your debt faster.
How Do You Qualify For A Personal Loan?
The most common requirements to qualify for a personal loan are being 18 or older, a US citizen or permanent resident with a valid Social Security number, good credit history, a minimum credit score of 580, and a reliable income. There may be additional requirements depending on the lender.
When applying for a personal loan, your debt-to-income ratio is also taken into consideration. This ratio looks at your total monthly income and your total monthly expenses.
Lenders use this to determine how much you can borrow. The more disposable income you have after paying your bills, the more credit you can access.
Personal Loan Application Tips
Here are some helpful tips to consider if you want to apply for a personal loan.
- Review your credit report. It's important to review your credit report for any errors in advance. Dispute any errors you come across and follow up until they are all corrected.
- Check your credit score. If you have a suboptimal credit score, it's best to wait a few months before applying for a loan. Work on improving your credit and monitor your credit score closely.
- Prequalify. If you use a personal loan marketplace like Credible, you have the opportunity to prequalify before applying. To prequalify, you'll submit details like your name, date of birth, Social Security number, the purpose of the loan, your income, employment status, and housing situation.
- Know what you can afford. Borrowing too much money over too short a time period could put you at risk of being unable to make payments and/or throwing your budget off course. Crunch your budget numbers carefully.
Tips For Comparing Personal Loans
There are several things to keep in mind and look for when comparing personal loans.
- Compare alternative options. When shopping around for a personal loan, it's worth looking at alternative options as well. If you aren't looking to borrow a large sum of money, a 0% APR credit card might be a cheaper option. However, you'll have to take the timeframe of the 0% APR into consideration. Most expire after 12 months and the fees can be very high if you don't pay off the full balance before the introductory 0% APR expires. Another alternative to consider is a HELOC (home equity line of credit).
- Review the APR plus any additional fees. When shopping for personal loans, you have to look beyond the APR differences. A lot of personal loans come with fees that vary from one loan and lender to the next. Check if the loans you're comparing have any origination fees, late payment fees, prepayment penalties, or others.
- Check if there are autopay discounts. The great thing about setting up auto payments is it helps ensure you don't forget to pay your monthly balance due on time. Plus, it can get you discounts on some loans. Look for this feature when comparing personal loans.
- Read reviews on customer service. Before selecting a loan, it's worth comparing ratings on the lender and the competition. Having reliable and supportive customer service can be a lifesaver if you run into trouble paying off your loan. Also check and see what hours and contact methods each lender offers before applying for a personal loan.
- Be selective. Don't apply for multiple loans just to see what happens. You can compare different loans and rates when you prequalify without any impact on your credit. But once you actually apply to a loan, the lender will perform a hard credit check that can slightly impact your credit score. It's best to only apply for what you really need.
Where To Shop For Personal Loans With Top Lenders
Now I'm sure you're wondering where's the best place to shop for personal loans? You could go to a bunch of individual lenders and see what their rates and offers are, but that's not very efficient. Instead, go straight to Credible, an industry leading lending marketplace, and get rates from multiple top lenders all in one go.
Here are a few reasons why you should use Credible to shop for a personal loan:
- Credible is secured with TLS encryption
- There are no hidden fees
- Get prequalified rates in under five minutes
- Easily check rates from multiple lenders at once
- They offer a best rate guarantee
When you're shopping for a personal loan, you want to find a lender that's highly rated. Credible is partnered with some of the most highly rated lenders including:
- Marcus by Goldman Sachs
- Lending Point
Checking Rates On Credible Doesn't Impact Your Credit Score
When you prequalify with Credible, you can get realtime personal loan rates through their soft credit inquiry technology. This means, you don't have to actually apply for a loan to compare rates, your credit score isn't affected, all at no cost to you and no obligation.
If you see a quote that does appeal to you, you can apply right in the Credible dashboard. It's so easy.
Online Marketplaces Are The Best Way To Shop For Loans And Insurance
Utilizing online marketplaces are a huge time and money saver. For example, I used the insurance marketplace, Policygenius, to shop for life insurance. I was able to get more life insurance coverage for less money than I was paying for my old policy. And the process was so easy and convenient.
What Determines The Rate You Get On A Personal Loan?
If you shop for personalized prequalified personal loan rates on Credible, you can relax knowing you'll see reliable quotes from top lenders at the lowest rates they offer for your circumstances.
Some of the factors that determine how low or high your quotes can include your:
- Credit score,
- Credit report history,
- Loan size,
- Loan duration,
- Employment status,
- Debt-to-income ratio, and
- Purpose for the loan.
Generally speaking, the higher your credit score and the better your credit history, the lower rates you can get. And, the shorter the loan term, ie the duration of the loan, the lower the rate.
Prequalified rates are based on the information you provide and a soft credit inquiry. Receiving prequalified rates does not guarantee that the Lender will extend you an offer of credit. You are not yet approved for a loan or a specific rate. All credit decisions, including loan approval, if any, are determined by Lenders, in their sole discretion.
Rates and terms are subject to change without notice. Rates from Lenders may differ from prequalified rates due to factors which may include, but are not limited to: (i) changes in your personal credit circumstances; (ii) additional information in your hard credit pull and/or additional information you provide (or are unable to provide) to the Lender during the underwriting process; and/or (iii) changes in APRs (e.g., an increase in the rate index between the time of prequalification and the time of application or loan closing. (Or, if the loan option is a variable rate loan, then the interest rate index used to set the APR is subject to increases or decreases at any time).
Lenders reserve the right to change or withdraw the prequalified rates at any time.”
Personal Loans Vs Credit Cards
Credit cards and personal loans are both forms of debt that can be used to pay for purchases and expenses. So when does it make more sense to get a personal loan instead of a credit card?
Personal loans are typically better for:
- large one-time purchases
- consolidating high-interest debt on big balances
- lower interest rates
- refinancing existing debt
- paying for home improvements
- borrowing without collateral
They also generally have lower interest rates than credit cards if your credit score is 690 or above. And the borrowing limits can be significantly higher than credit cards. Monthly payments are also fixed which makes it easier to maintain a budget.
Credit cards are a good choice for:
- ongoing revolving credit
- small expenses that you can comfortably pay off in full each month
- disciplined, everyday spending
- consolidating credit card debt to a lower rate
- earning rewards
- 0% introductory APRs
- Building better credit
Because credit cards make it very easy to buy things, you should only use them for expenses you can pay off quickly. This avoids costly interest charges from high double digit APRs.
You can also apply for credit cards with great rewards programs and 0% introductory rate promotions if you qualify. Just be careful to avoid credit cards with annual fees, processing fees, late payment fees, and foreign transaction fees.
Personal Loan Alternatives
If personal loans and credit cards aren't suitable for your needs, what else can you use? Some other types of loans and credit products include home equity loans, home equity line of credits (HELOCs), business loans, payday loans, and cash-out refinances.
Compare Personal Loan Rates
Now that you know all the basics of personal loans, you're ready to prequalify and compare rates. Requesting prequalified rates on Credible is free. However, closing a loan will result in costs to you.
Credible makes it super easy to prequalify and compare loan offers, terms, fees, monthly payment amounts, and repayment terms from top lenders in just minutes.
Access funds fast: If you like what you see, you can get the funds for your personal loan as fast as the next business day once your application is completed and approved.
Check personal loan rates with Credible today and get the funds you're looking for.
Disclosure: NMLS ID# 1681276, Address: 320 Blackwell St. Ste 200, Durham, NC, 27701 Not all available financial products and offers from all financial institutions have been reviewed by this website. This content is not provided by Credible or any of the Providers on the Credible website. Any opinions, analyses, reviews or recommendations expressed here are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by Credible.