Thinking about applying for a personal loan? One of the best places that offer them includes bank and credit unions, but you can also try applying through online lenders and zero-interest credit cards. However, it’s important to research your finance options as well as your credit scores before you start applying, so you can get the best rates based on your financial history. Another thing to keep in mind is the high-interest rate personal loans carry. Obviously larger than car or mortgage loans, these loans are only backed by your signature which puts the lender at higher risk. But, the better your credit and bank history are the lower your rates will end up being.
How Your Credit Can Determine Your Options
The best credit you can have when applying for a personal loan range from 720 to 850, which come with the lowest rates from most major lenders. However, with such amazing credit, you would be better off applying for a 0% introductory rate credit card.
For people with credit from 690 to 710 who cannot qualify for a no-interest credit card should be able to find good rates for personal loans. Since even a standard credit card’s rates will be much higher than personal loans which provide the best option.
If you find yourself to be of average credit risk which includes an average credit score of 630 to 689, you can still find fair rates but only with a long credit history and a steady cash flow. One of the disadvantages of being average credit risk is the exclusion of some lenders due to secured credit requirements.
Finally, with bad credit risks such as 300 to 620 credit scores, you are much more likely to experience unfavorable rates with a co-signer to apply for a personal loan. Unfortunately, some credit lenders start APR’s at as much as 36% which may be a dealbreaker for most younger applicants.
Remember, even when lenders don’t have credit requirements they still use your score to determine your APR. As disqualifying lower credit may be, by raising your credit score you are much more likely to be accepted with extremely low rates overall.
The Best Places to Look For a Personal Loan
The best places to start looking for a personal loan include your local bank and credit union, especially if you are a regular customer with positive financial history. Since credit unions are non-profit, they offer lower rates but overall you’re more likely to find affordable rates to suit your needs.
If you’re leaning towards online lenders, they are plenty of different kinds to choose from. Peer-to-peer lenders which offer more competitive rates and larger loan amounts are backed by investors and fulfilled by lenders determined by how much risk they are supporting.
However, the majority of online lenders try to engage and attract their clients with perks such as no fees, payment breaks, financial advice, and more flexible payment options that most physical banking locations.
A majority of online lenders will give you an interest rate and terms quote during the preliminary application process. During this process, they run a soft pull on your credit report, which does not hurt your credit score.
The funds from your new loan will usually be delivered directly to your bank account within a couple of days. If you are only looking for a small loan of $2,500 or less, check a credit union first as some lenders will not offer loans this small.
How to Choose a Lender
Looking at loan rates is important, but it is not the only factor to take into consideration. Because the personal loan market is so competitive, lenders often offer extras to set themselves apart. Some offer debt counseling, repayment flexibility, lending guidelines that take more than credit into account, and more. Decide what features would be most useful to you and search for a loan that meets your needs.
When You Should Take out a Personal Loan
You should only take out a personal loan if it will impact your financial future positively. Do not borrow money simply because you can, only do it as a part of your debt management plan. There are loans and credit cards available for big purchases like cars, vacations, and homes. These are usually cheaper than taking out a personal loan.
If you plan to consolidate your debt, you should only take out a personal loan to do so if it will help you avoid more debt or it will help you become debt-free quicker. If neither of those reasons apply to you, consider waiting until your credit has improved to take out a loan.
Only look for a loan at a reputable bank or credit union. Do not fall into the trap of high interest or payday loans. You may also consider reaching out to a debt counselor. They can give you advice and help you come up with the best debt management strategy for your needs.