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A personal loan is money one borrows from a financial company (usually a bank or a credit union, but can also be an online lender) that you repay in fixed installments. You pay back the loan principal with interest over the predetermined time period. The most common terms are two to five years, though in many cases you can take out a loan for as little as one year or as long as seven years.
Before beginning your search for good personal loan companies, you need to come up with a strategy. What are you using the loan for and what terms do you need to be able to pay the loan back? There are multiple reasons procuring a loan may be appropriate for you. A lot of people consolidate debt or pay off credit cards as they are often able to get much lower interest rates through a bank than are offered by credit cards.
You may need to secure a loan to pay down medical bills that have accumulated or to remodel your home. You may also have more personal reasons for seeking good personal loan companies, including helping a friend or family member in need, going on a great vacation, and paying for all or part of your and your child’s wedding.
There are many advantages to looking into good personal loan companies that can help you achieve your financial goals. Not only do loans generally offer a lower interest rate than most credit card companies, but the rate remains constant. A credit card company may entice you with a low or even non-existent interest rate at first, but then it becomes much higher and can be raised at any time.
Unlike a mortgage or car loan, most personal loans are unsecured loans, meaning there is no asset tied to the repayment of the loan. As long as you do repay the loan by making each payment, your credit score will benefit and make you a more trustworthy borrower for the future. This can make your total cost, including interest, much lower on bigger loans like a mortgage or auto loan.
A personal loan can also help you organize your personal finance, particularly if you are making minimum payments on multiple accounts. Making one consistent payment each month is much easier to monitor and can help your credit score when you consistently meet the payment.
Although there are many good personal loan companies to borrow from, getting a personal loan may not be right for you, depending on your financial situation and what you are using the money for.
Getting a competitive interest rate will depend on you having good credit. The worse your credit score is, the higher the interest rate will be on your loan. There are often fees associated with taking out a loan so if the fees and interest rates are too high for you, getting a personal loan may be more hurtful than helpful to you.
If you have trouble curbing your spending, getting a personal loan can only intensify your financial difficulties. For example, if you get a loan to pay off credit cards and then start racking up debts on them, you are now stuck with both credit card payments and the monthly personal loan payments.
It is critical not to take out a loan if you are not confident you can make the payments. Defaulting on a personal loan won’t cost you an asset if it is an unsecured loan, but the lender can sue you for the unpaid part of the loan. This would end up costing you much more money at a time when you are already struggling financially.
To receive a loan from any of the good personal loan companies, you must apply and then let the lender delve into your financial health. One of the main factors will be your credit score. Although you may be able to secure a loan with a mediocre credit score, your interest rates will be higher. Having a strong credit number will give you your best chance of getting a low-interest rate.
FICO is the most widely-used measure of consumer credit risk used by lenders in the U.S. Although there may be leeway with financial companies, generally, a mediocre FICO score ranges between 580 and 669 with a good credit score between 670 and 739. The majority of companies require a minimum FICO score of 600.
Obvious financial issues like a previous bankruptcy or foreclosure will hurt your chances to secure a personal loan. If you have too much debt, a lender may see you as too great a risk for a loan. Even if you have a high salary, it will be viewed against the amount of debt you have. Good personal loan companies are far less likely to extend a loan to you if your debt-to-income ratio is greater than 43%.
Lenders need to see how much money you make, but will also look at your employment history to ensure you are regularly making the same amount and that you have a consistent work history. If you change jobs regularly, you will likely be viewed as more of a risk. Periods of recent unemployment can also work against you in the loan application process.
Fortunately, there are a lot of good personal loan companies to choose from and this gives the consumer options. The best place to start is with your own bank and/or credit union if you have had a good history with them. They may be able to offer you better rates than other lenders and be more forgiving of any financial mistakes in your past.
Even if you think you are receiving a good rate at a bank you are familiar with, it always pays to look around at several good personal loan companies to get the best rates. Make sure not to apply at various places for loans as that can lower your credit score. Shop around for the best rates before beginning the application process.
Be aware that when a financial institution or lender advertises a low interest rate, that is the lowest rate for a borrower with an excellent credit score. Make sure that you are gathering information relevant to your financial situation.
Investigating good personal loan companies ahead of time will also give you a sense of what kind of customer service you will receive at that bank/credit union or online lender. Be sure to check for fees because they could make a big difference in the total cost of your loan.
In addition to visiting local banks or credit unions in person, there are multiple online sources to help you determine good personal loan companies who can meet your needs.
Bankrate.com has a page dedicated to personal loan resources. It includes a loan calculator and information if you are trying to get a loan without good credit. One of the key resources is the ability to see which personal loans you pre-qualify for. By answering just a few questions, you can get a good sense of loan terms available to you and your credit score will not be impacted by the process.
U.S. News and World Report also has a page dedicated to personal loans in which it ranks the top lender in multiple categories. Not everyone is seeking the same information from good personal loan companies so this resource is helpful for your specific needs. The report ranks the top lenders in categories for large loans, no-fee loans, loans for those with up to a 50% debt-to-income ratio, and for those with only fair credit among others.
Once you have determined how much you can afford to pay monthly and you have researched good personal loan companies, you are ready to apply. Lenders will give you a pre-approved interest rate that will be in effect for a prescribed period of time, no more than 90 days. The rate is subject to change in the final application.
In order to apply for a loan, you will be required to provide photo identification, SSN (Social Security Number) or ITIN (Individual Taxpayer Identification Number), bank statements, and proof of employment.
In the formal application process, you choose the length and amount of the loan, while the lender provides the interest rate and fee information. The formal application process will result in a hard inquiry on your credit report, which is a good reason to have chosen a lender or at least narrowed your choices significantly before officially applying for a loan.
It is also important to also ask the lender how you will receive the funds. Many lenders will use direct deposit to put it in your checking account, but you may prefer to receive a check or put the money on a debit card. Whatever method you choose should then be used for your specific purpose in the loan request.
You put a lot of time and energy into choosing from among the good personal loan companies, and had your financial life evaluated with a fine tooth comb. You don’t want all that work to go to waste as you look to improve your life and financial standing.
The best thing you can do for your present and future is to pay your monthly bills on time for the extent of the loan. Make sure you learn all the ways you can pay your bill so you have options to ensure you pay on time. In addition to fulfilling whatever your initial need was, you can also build your credit score for future purchases, saving you a lot of money in the long run.
If your financial situation improves during the course of the loan, you may be able to pay off the loan in a shorter time than the original term. In doing so, you will be able to save a lot of money that would have gone to paying off interest and either save it or spend it on something with a greater benefit than interest.
Finding yourself the best terms from good personal loan companies and then paying off the loan with timely payments will not only benefit you financially for years to come, but help you establish healthy money habits, and give you peace of mind as your pursue future financial goals.
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