Wondering how to get a personal loan? You’re in the right place. There are many reasons a personal loan might seem like the right move. If you’ve got a big medical bill outstanding, some high-interest credit card debt that you want to consolidate or a cross-country move in your future, a personal loan could be a good fit. Let us walk you through the basics of obtaining one of these loans.
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How Do Personal Loans Work?
Getting a personal loan isn’t what it used to be. In the old days, lenders wanted to know your credit score, see your tax returns and get your employment details before they decided whether to give you a personal loan and how much to charge you.
More recently, a new crop of lenders has emerged. These lenders often include non-traditional factors like your SAT scores and your social media accounts when deciding whether to lend to you and what interest rate to charge. In many ways it’s easier to get a personal loan now than it was when credit unions and traditional banks dominated the personal loan landscape.
Personal loans can range in size and term length. Some loan terms can last for years while others (payday loans) are usually due just a couple of weeks after you borrow the money. If you repay a payday loan within that small window of time you won’t owe interest but you will pay the origination fee for the loan.
Other forms of personal loans, including installment loans, start racking up interest right away. Your monthly interest payment will depend on the size of your loan and your interest rate. Some lenders offer lower interest rates with longer terms.
A good personal loan calculator can tell you whether it’s cheaper in the long run to choose the lower interest rate with the long term or the higher interest rate with the shorter term. A good general rule? Don’t borrow more than you can afford.
Check Your Credit
If you have some time before you’ll need a loan, it’s a good idea to get your credit score as high as you can before you start applying for loans. Every American is entitled to receive a free copy of their credit report each year. Go to annualcreditreport.com for yours. After you get your report your first course of action will be to correct any errors that appear on your credit report. Once you’ve corrected any mistakes you can get to work building up your credit score.
If your credit score is low or nonexistent, you may be better off shopping for a personal loan from a nontraditional lender. No, we don’t mean the payday loan place around the corner. We mean online-only lenders and peer-to-peer lending sites.
These relatively new startups can be a great fit for, say, recent graduates who don’t have much credit to speak of. Because they look at a variety of factors, these lenders don’t put as much emphasis on credit histories and credit scores. If your goal is to build up your credit, it’s important to opt for a loan that your lender will report to the three main credit reporting agencies.
Related Article: 3 Personal Loan Mistakes You Can’t Afford to Make
Shop Around for Small Loans
Getting a loan doesn’t have to be expensive. From the moment you first think to yourself, “I need a loan” you should be thinking about how to obtain the lowest interest rate available to you. Ideally you would have time to do plenty of research and shop around. Even folks with below-average credit can get relatively affordable loans through online lenders and peer-to-peer lending sites. If you can avoid having to get a payday loan or an installment loan you’ll be much better off.
To qualify for a personal loan from a traditional lender you’ll need to have decent credit. If you want to get a personal loan from a bank or credit union you may have access to lower rates if you go for a secured loan. Secured loans have some kind of collateral that backs the loan. That could be your savings account, the title to your car or your home equity.
Related Article: Debt Consolidation Loans
The personal loan industry is growing and changing. That means that anyone who wants to get a personal loan has more choices. It’s both a blessing and a burden. The blessing is that it’s easier to find an affordable loan now that there are lenders who take factors other than income and credit score into account.
But it’s also a burden because it means that there’s more comparison shopping to be done. That comparison shopping is absolutely worth it, though. Under the heading of “personal loan” there are affordable low-interest loans and loans with punishing interest rates that lead to debt spirals. As the US government likes to say, “Know before you owe.”
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