Whether you are looking to invest in a remodel, pay off credit card debt, or purchase a vehicle, knowing how and where to get a personal loan can help you get back up on your feet. But what is a personal loan? A personal loan is an unsecured fixed-rate installment loan, meaning that there is no personal collateral needed to cover them (such as a home or vehicle title). Loan amounts generally range from $1,000 to $50,000 and monthly payments are FIXED, so there is no variation in what you pay month to month.
Interest rates on your personal loan will vary from lender to lender and are based on your credit score. These rates are most likely FIXED, meaning that there will be no variation in interest rates on your monthly payments. Be wary and read all fine print, as even some loans have prepayment penalties where a fee is added on if you pay your loan off too quickly.
Your Credit Score and Report
There is no larger influencer on your interest rate than your credit score and credit report. You can get your credit score for free from the mandated government website www.AnnualCreditReport.com . On the website, you will find your score for all 3 major credit companies: Experian, TransUnion, and Equifax. You can also sign up for a free service such as CreditKarma.com.
The most important factor for a lender is the likelihood that you will repay the personal loan back, and the amount that they are willing to lend is heavily based on your ability to repay. Having a cosigner is a great way to increase your likelihood of repayment while also allowing you to possibly borrow even more money. A cosigner is a person who “guarantees” that the loan will be paid back in full with interest. In the event of a default (failure to make payments), the creditor will have the right to collect the funds from the cosigner.
Many personal loans also charged an “Origination Fee”, usually the cost of processing the loan. To make sure you are getting the best loan possible, make sure you compare the APR (Annual Percentage Rate) of the loan and not the interest rate. The APR includes the origination fee and it automatically assumes that you will not pay off the loan early.
When researching personal loans, be sure to know the minimum credit requirements needed. A good place to start is with a bank or credit union. Credit unions tend to have more flexible lending standards and are usually more willing to offer small personal loans.
Be sure to limit the number of inquiries you make, as each loan application you submit triggers an inquiry on your credit. A hard inquiry usually lowers your credit score by 5-10 points. Thankfully, you can find multiple personal loans for bad credit borrowers online as well.
All in all, you need to do your research before even thinking about applying for a personal loan. Remember to look at alternatives as well such as building up your credit score first, so that the loan will cost you less in the long run. A personal loan with low interest can be a great option compared to credit cards and the high-interest rates some of them may carry.