When you are in need of some cash you don’t have, many people look to credit cards, but that isn’t always the most wise decision. When you need money and you need it relatively fast, a personal loan can be a great option. Personal loans have risen in popularity and according to TransUnion at the end of 2016, FinTechs (online banks) represented 30% of all personal loan balances, up from about 4% in 2012. This is a result of how online-only banks can provide lower interest rates vs the traditional banks. Personal loans can can be a great alternative and you can get your funding fast while saving on interest.
So, what is a personal loan?
A personal loan is money you borrow from a financial institution that you pay back in monthly installments. Personal loans can be offered by traditional banks, online banks and credit unions. These loans typically range from $1,000 – $100,000. The interest rates on personal loans can be either variable or fixed.
How does the repayment on a personal loan work?
The typical repayment period for a personal loan can range anywhere from one to five years, but some personal loan lenders may allow different durations. When you apply for a personal loan and get approved, you can receive your funds sometimes as early as the next business day.
What are the interest rates like on a personal loan?
To save the most amount of money on any loan its best to have a healthy credit score. A healthy credit score can go a long way and help you get the lowest possible interest rate, Remember, the lower the interest rate, the more money you’ll save and the less amount of interest you will have to pay on your loan.
Personal loan companies look for certain criteria when borrowers apply. Lenders want to lend to responsible borrowers with a good to strong credit profile, stable and recurring income and low debt-to-income (usually less than 30%).
As previously mentioned, personal loans have either a fixed or variable interest rate. A fixed interest rate means that the personal loan interest rates do not change over the life of your personal loan. Variable interest rates mean that the personal loan interest rates do change over the life of your personal loan based on movements in underlying benchmark interest rates.
What would I need a personal loan for?
Personal loans can be used for pretty much everything and they can help you get money fast. Many borrowers use a personal loan for a variety of things such as:
- Medical Expenses
- Home Improvements
- Trips To The Vet
- Emergencies
- Engagement Rings
- Wedding Costs
- Honeymoon
- Funerals
- Vacations
- Automobile Repair
- When You Need Money Fast
What are the interest rates like on a personal loan?
To save the most amount of money on any loan its best to have a healthy credit score. A healthy credit score can go a long way and help you get the lowest possible interest rate, Remember, the lower the interest rate, the more money you’ll save and the less amount of interest you will have to pay on your loan.
Personal loan companies look for certain criteria when borrowers apply. Lenders want to lend to responsible borrowers with a good to strong credit profile, stable and recurring income and low debt-to-income (usually less than 30%).
As previously mentioned, personal loans have either a fixed or variable interest rate. A fixed interest rate means that the personal loan interest rates do not change over the life of your personal loan. Variable interest rates mean that the personal loan interest rates do change over the life of your personal loan based on movements in underlying benchmark interest rates.
What is an “Unsecured” Personal Loan?
The term “unsecured” means that there is no underlying collateral attached to the loan. If you default on unsecured personal loans, then the lender can collect on the unsecured personal loan per the terms and conditions of the loan agreement. So, what does this mean? It means a personal loan interest rate is typically higher than a secured loan such as a mortgage because the lender is assuming more risk.
In contrast, if you borrow a mortgage for your house, your mortgage is a “secured” loan and your home is the collateral. If you default on your mortgage, your lender will then own your home.
Where can I find the best personal loan rates?
The best place to find a personal loan with a competitive interest rates is with online lenders, banks and credit unions. Finding the best rate takes minutes and you can apply online. It is an efficient process and luckily DollarGeek can help you compare the best personal loan lenders. To begin, use our personal loan calculator and get an idea of what you can afford and what makes sense. After you see some numbers find the best lender with DollarGeek.
Personal loans and credit cards
A popular use of a personal loan is for credit card debt consolidation. Many borrowers will combine all of their credit card debt and pay it all off with a personal loan. The reason for this is because personal loans typically have a lower interest rate compared to credit cards, and instead of multiple monthly payments you will consolidate it to one. Your goal is to pay off your debt as quick as you can, and a personal loan’s lower interest rates will help you save money along the way. Always keep in mind that a strong credit profile helps lower your rate.
What are the key benefits of a personal loan?
Now that you already know what a personal loan is and how they work, learn about some key benefits:
Personal Loan Interest Rates Are Lower Than Credit Card Interest Rates
The best personal loans typically have lower interest rates than credit cards, especially if you have good credit. While some credit card companies offer interest rate promotional offers, those end at some point and you wind up with higher rates. A personal loan’s lower interest rate will help you pay less money for your debt. A good example to compare is a typical APR for a credit card, which can be around 15%. If you have a strong credit profile, some of the best personal loan companies offer rate as low as 6%. The savings can really add up and it’s good to know your options. Plug in some numbers with DollarGeek’s credit card debt consolidation calculator and see what makes sense.
Unsecured Loan
Personal loans are usually an unsecured loan. An unsecured loan is a loan that is supported by your credit score rather than some type of collateral (like a mortgage and your home). Lenders are selective with their borrowers and the stronger your credit profile the better interest rate you can receive.
Flexibility
The best personal loans offer flexibility and can be used for essentially anything. You can use a personal loan for credit card consolidation, medical bills, trips to the vet, engagement rings, vacations and a lot more.
Get Cash Fast
The process of applying for a personal loan is quick and simple. You can find the top online personal loan lenders with DollarGeek and get an idea of which lender suits your specific needs. Receiving your money is a fast process and sometimes can be in your bank account as soon as 24 hours.
How do I make a decision on a personal loan?
It’s a process. You have to keep in mind the pros and cons. A personal loan can help you get cash quickly and a lower interest rate than typical credit cards. If you can save money on your debt by using a personal loan it can help you keep more money in your pocket. On the other side, if you can afford the monthly payments and
The best personal loans are right for you if they meet your specific needs. When we covered “what is a personal loan” we said that personal loans can help virtually any use. If you want to consolidate credit card debt, pay medical bills, get money for emergencies, or make home repairs, then the best personal loans can meet your needs.
What documents are needed to apply for a personal loan?
Personal loan companies will require several documents when filling out your application. While the requirements vary by lender, most personal loan companies let you to submit the documentation online. This is a great perk and saves a lot of time, nobody wants the hassle of meeting with a loan officer at a bank. Online banks are able to give you the some of the best interest rates on your personal loan because they save money by keeping their overhead costs low and their use of technology.
Things You Might Have To Provide Upon Applying :
- Driver’s License, Social Security Card or Passport
- Social Security Number
- Proof of Income (Ex: Paystub)
- Proof of Address (Ex: Electric bill or rent agreement)
- Gross Income
- Other Debt
- Monthly Expenses
- Previous Address
Every lender is different, but the list above shows some of the most common requirements.
What is the process to apply for a personal loan?
Applying for a personal loan is a simple process. Once you have determined that a personal loan is right for you, here is how to apply for a personal loan in 5 easy steps.
- Compare Personal Loan Rates: You don’t have to look far to know where to get a personal loan. You can use DollarGeek’s free comparison tools to find the best personal loan rates for your personal loan. With most online personal loan companies, you can learn your new personal loan rates in just a few minutes for free and with no impact to your credit score.
- Check Your Credit Score: Speaking of credit score, the best personal loan companies want to lend to responsible borrowers with a track record of financial responsibility, good credit and stable income. Therefore, it is important you know your credit score. The higher your credit score, the higher your chance of approval and the higher change of getting the best personal loan rates.
- Have Your Documents: Personal loan companies will require several documents as part of the personal loans application process. You will have to provide a few documents, such as pay stubs for proof of income, your driver’s license number and Social Security number.
- Apply Online: You can apply for personal loans online directly through DollarGeek through one or more of our partners. Use our personal loan comparison table to find the best personal loans and best personal loan companies for you.
- Get Your Decision: Most personal loan companies will provide you with a decision in minutes. The good news is that most personal loan companies will send you the money within a few days, which is ideal for quick personal loans.
Can a personal loan raise your credit score?
Yes. Paying your personal loan’s monthly payments on time can help you increase your credit score. Credit bureaus, which are the companies responsible for your credit score, analyze various criteria to determine your credit score. One metric the credit bureaus use is the types of debt that you have. If you only have credit card debt, having a personal loan can offer the diversity of the types of debt that you have.
A personal loan is classified as installment debt. This means you pay the same amount each month. Credit cards are revolving credit.
Do not take out a personal loan just to raise your credit score, that is not a wise decision. But, when you need money, make sure to take a look at the best online personal loan lenders, overall they offer the best rates and trim down your costs.
What are peer-to-peer lenders?
A peer-to-peer loan (also known as P2P lending), is a personal loan that is funded by another individual or investor, rather than a financial institution. Peer-to-peer personal loan companies are online platforms that match borrowers and lenders together. With P2P lending, individuals can invest in personal loans and essentially lend you money on the online platform of the personal loan companies.
Secured loan vs Unsecured loan
A secured loan means that you as the borrower have to pledge collateral to borrow money. For a personal loan, this means that the personal loan company would ask you to pledge an asset with equal value for the amount of your personal loan. Personal loan companies want to minimize their risk in case you do not pay back your personal loan.
Unsecured personal loans are the more common type of personal loans. Unsecured personal loans do not require any collateral, so personal loan companies take more risk.
So, if you ask where to get a personal loan, you are better off borrowing an unsecured personal loan because you don’t have to pledge any collateral. Most personal loan companies, including online personal loan companies, deal with unsecured personal loans.
