Anybody who has incurred a cash flow problem, suffered an emergency, or needed funds to pay for medical expenses, home improvements or even a college education has likely considered a personal loan. Personal loans are appealing because they allow us to acquire large investments and pursue future goals. However, there are many different kinds of loans and it’s important to consider your needs and financial situation before deciding on which type of personal loan is best for you.
Here's How I Rated the Best Personal Loan Companies
I sat down and compared all the most popular lenders by different factors such as:
- Loan amounts
- Loan terms
- Customer service
Personal Loans for Debt Consolidation
Credit card bills and high-interest debts become more burdensome and expensive with every month that passes. To stop the bleeding, so to speak, many people turn to personal loans for debt consolidation, which prevents further interest from accumulating.
Essentially, debt consolidation bundles all of your high-interest debts into one bulk payment that can be paid off with a personal loan. This allows you to take care of multiple credit card bills and debts with one swift payment. Then, instead of juggling multiple bills and worrying about interest rates constantly accumulating, you’ll only have one monthly payment to make.
Personal Loans for Medical Expenses
Medical bills can cause an enormous strain on our personal finances. Whether you’ve suffered an unexpected medical emergency or are experiencing issues with your health insurance company, medical expenses add stress and financial burden at the most inopportune time—when you’re focused on recovery. To ease the weight of dealing with medical bills while recovering, many people take out personal loans to pay off their medical expenses.
There are a few reasons personal medical loans can be beneficial. For one thing, they’re unsecured, meaning you won’t have to offer collateral such as a car or other asset. For another, they usually come with fixed terms so that your debt won’t go on for an unreasonable length of time. Lastly, if you have good credit you could find loans with excellent interest rates.
Personal Loans for Good Credit
Your credit score is the defining factor in determining the quality of your personal loan. Excellent credit scores mean lower rates, moderate credit scores mean you’ll have to pay higher rates, and poor credit scores can prevent lenders from offering you any loan at all.
Your credit score is measured on a scale of 300-850, with scores defined as “excellent” starting around 720, scores defined as “good” landing at 690 and above, and scores less than that being considered either “fair” or “bad.”
Naturally, those with high credit scores have many more loan options available to them, though they’ll still want to research the best loans available and try to find a good-credit lender offering the lowest rate possible.
Personal Loans for Students
College undergrads that meet the definition of “dependent students” are eligible for federal student loans for all 4 years of undergraduate college. However, the current loan amounts—$5,500 for freshmen, $6,500 for sophomores, and $7,500 for junior and senior years—are increasingly inadequate at covering the average cost of tuition, to say nothing of books, room and board, and living expenses. For that reason, some students are turning to personal loans to cover the rest of their education. It’s not an ideal option, as most college students have poor credit and will only be eligible for loans with high interest rates. That said, some find it a viable solution since personal loans for students offer quick funding without requiring collateral.
Short-Term Personal Loans
A short-term loan is generally unsecured, meaning you don’t have to put collateral down, and are paid back in 3 years or less. They’re best used in situations where the borrow is relatively confident they’ll have funds in the future, though they can also be of assistance when experiencing an unexpected setback or cash flow problem.
The benefits of a short-term personal loan include easy qualification and quick funding without collateral. However, you can expect interest rates to be high. In addition, loan amounts will be significantly less than you’d find with other types of personal loans.
Long-Term Personal Loans
A long-term loan is a personal loan that you can pay back in a duration that typically extends beyond 3-5 years. When you take out a long-term loan, you can expect to get more money and pay lower interest rates. Additionally, your monthly payments will be lower since by definition a long-term loan gives you more time to pay it off. However, they typically require some item of collateral, such as your home or your car.
Long-term personal loans are most ideal when you need significant sums of money but your
financial situation prohibits you from paying it off in just a few years. People typically take out long-term loans for large purchases like a car or home, or to pay for ongoing education.
Personal Loans for Fast Funding
When emergencies arise or cash flow abruptly stops, quick-cash loans can be helpful in getting you the money you need without quickly and without excessive paperwork. Situations that often justify personal loans with fast funding include emergency repairs on a home or car or unexpected medical expenses. Many lenders on the market can have money in your bank account in 24 hours; otherwise, it may take a few days. The benefits to a fast-funding loan are obvious, but there are some things to consider, namely the fact that interest rates may suffer and the terms of the loan may not be as flexible.
Personal Loans with a Cosigner
Borrowers with a low credit score can get a better personal loan if they have a cosigner. A co-signer is someone who agrees to cover the payments if the borrower defaults, and they essentially stand in for the risk the low-credit borrower poses to the lender.
Typically, anyone with a credit score lower than 620 will have a difficult time finding a good personal loan with a cosigner. If not rejected outright, they’ll have to compromise on a loan with high interest rates. Bringing in a cosigner can help you quality for a loan you otherwise would not be eligible for. Additionally, taking on and paying off the loan can help you repair your poor credit score.
Personal Loans for Bad Credit
Bad credit is easily the biggest obstacle to finding a personal loan. If a loan applicant has a low credit score, they’re seen as a risk to the lender and are less likely to be approved. Credit scores range from 300 to 850, and a bad credit score is generally defined as being below 580. Even scores between 580 and 669, which are considered “fair,” can be an impediment on finding a good loan.
Low-credit borrowers do have loan options though. Lenders typically have credit requirements, and some may offer loans to those with fair credit. Others have no requirement whatsoever, and these are the realistic lenders for those with bad credit. It’s important to note, however, that loans for borrowers with bad credit will have higher interest rates and higher fees.
Personal Loans FAQs
How is a credit score calculated?
Your credit score is calculated based on your loan repayment history, credit card usage, and other financial markers that can give lenders a rough guide of how responsible you are with money and how much of a default risk you are. No matter what your credit score is, you will be able to find a lender that will offer you a loan.
How do interest rates work?
The interest rate is how much the lender charges a borrower for a loan and is expressed as a percentage of the amount borrowed. For example, if you take out a loan for $10,000 with an interest rate of 5%, you’ll end up paying $10,500 over time. If you get an interest rate of 10% though, you’ll be paying $11,000. If you’re consolidating debt and the interest rate is still lower than your earlier loan, then you’re in good shape.
What is an APR?
APR is an acronym for annual percentage rate. It combines the charges, fees, and payments to tell you the grand total of what your loan will cost you per year. The lower the APR, the less you are going to pay in the long run.
The APR calculation on personal loans will vary depending on your lender, but it will typically be lower than what you would receive from a payday or short-term loan—usually starting at 10% and capping at 35.99%. It is not ideal to owe any money, but if you require a loan, then a personal loan could certainly be a viable option.
Representative example: assuming a loan of $10,000 over 60 months at a fixed rate of 3.1% per annum and fees of $60.00. This would result in a representative rate of 3.3% APR, with monthly repayments of $180.80, for a total amount paid of $10,848.00.
How much can I get approved for?
There isn’t a clear right or wrong answer to this question—it all depends on your needs, your income and your abilities. You need to make sure that the monthly payments aren’t too heavy for you to keep up with. After all, there’s no sense taking out a loan only to find yourself unable to keep up with the payments.
What loan term should I take?
This is a pretty simple calculation, but what works for you can be anything but simple. If you decide to go for a lender that offers short term loans you will have higher monthly payments but will pay less interest over the life of the loan. If you spread it out over a longer loan term, your monthly payments will be lower, but the overall interest you pay will be higher.
* Credible Terms and Conditions:
Credible is so confident in the personal loan rates you’ll find on Credible, we’ll give you $200 if you find and close with a better rate elsewhere. See full terms and conditions.
** LendingClub Terms and Conditions:
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.95% to 35.89%. The origination fee ranges from 1% to 6% of the original principal balance and is deducted from your loan proceeds. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at the time of application. The average origination fee is 5.49% as of Q1 2017. In Georgia, the minimum loan amount is $3,025. In Massachusetts, the minimum loan amount is $6,025 if your APR is greater than 12%. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months. Borrower must be a U.S. citizen, permanent resident or be in the United States on a valid long term visa and at least 18 years old. Valid bank account and Social Security number are required. Equal Housing Lender. All loans are subject to credit approval. LendingClub’s physical address is: LendingClub, 71 Stevenson Street, Suite 1000, San Francisco, CA 9410
*** Marcus By Goldman Sachs® Offer Terms and Conditions:
For NY residents, rates range from 6.99% to 24.99% APR. Only the most creditworthy applications qualify for the largest loan amounts and lowest rates. Your loan terms are not guaranteed and are subject to our verification of your identity and credit information. To obtain a loan, you must submit additional documentation including an application that may affect your credit score. Rates will vary based on many factors, such as your creditworthiness (for example, credit score and credit history) and the length of your loan (for example, rates for 36 month loans are generally lower than rates for 72 month loans). Your maximum loan amount may vary depending on your loan purpose, income and creditworthiness. Your verifiable income must support your ability to repay your loan. Marcus by Goldman Sachs is a brand of Goldman Sachs Bank USA and all loans are issued by Goldman Sachs Bank USA, Salt Lake City Branch. Applications are subject to additional terms and conditions.