CompareOffers.com's guide to choosing the best personal loan
What is a personal loan?
Personal loans are unsecured short-term loans typically repaid in monthly installments over a specific term. You can use the funds for almost any purpose, such as paying off other debt, financing home improvement or paying for that big life vent, like a wedding or adoption. Personal loans are a great option for consolidating your credit card debt with a lower interest rate.
Personal loans are typically not backed by collateral such as a car or house. You can get a personal loan from banks, credit unions, online lenders and peer-to-peer lenders. Lenders will look at your income, credit score, credit report and debt-to-income ratio.
What are the interest rates on personal loans?
Depending on your credit score, personal loan interest rates can range from 2.49 percent to 36 percent. Borrowers with better credit scores typically get the lowest interest rates and higher loan amounts.
Reasons to get a personal loan
Most lenders allow you to use your personal loan for just about any purpose. It's best to make a positive impact on your financial health with your personal loan, by paying off high interest debt or adding value to your home with renovations.
- Debt consolidation: Debt consolidation is when you roll debts into a new personal loan and one monthly payment, usually reducing the interest rate.
- Home improvement: Personal loans are a great way to pay for a large home renovation and boost the value and equity in your home.
- Major purchases or events: Cover upcoming major expenses such as a wedding or vacation. You can even use your personal loan to buy a boat or RV.
- Emergency expenses: Unexpected expenses like a car repair or hospital bill can throw off your monthly budget. A personal loan can help cover the immediate cost.
What are the benefits of personal loans?
There are several benefits to getting a personal loan, including:
- Fixed monthly payments: With a personal loan, you will have fixed monthly payments, which can make it easier to budget and manage your finances. This is in contrast to credit cards, which have variable interest rates and monthly payments that can fluctuate based on your balance and other factors.
- Fixed interest rate: Personal loans typically have a fixed interest rate, which means that your interest rate will not change over the life of the loan. This can make it easier to predict the cost of borrowing and can help you avoid the uncertainty and potential cost increases that come with variable interest rates.
- Quick access to funds: Personal loans are typically disbursed quickly, often within a few days of applying for the loan. This can be useful if you need to access funds quickly for a specific purpose, such as consolidating high-interest credit card debt or paying for a large expense.
- Potential for lower interest rates: Depending on your credit score and other factors, you may be able to qualify for a personal loan with a lower interest rate than what you would get with a credit card or other type of loan. This can save you money over the life of the loan and can make it easier to pay off your debt.
- Flexible use of funds: Personal loans can be used for a wide range of purposes, including consolidating debt, making home improvements, paying for education expenses, or funding a small business. This flexibility can make it easier to use the loan for the specific purpose you have in mind.
How to get a personal loan
- Determine how much you need to borrow: Before applying for a personal loan, it is important to determine how much you need to borrow. This will help you determine which loan products are available to you and will allow you to compare offers from different lenders.
- Shop around and compare offers: Once you have an idea of how much you need to borrow, you can start shopping around and comparing offers from different lenders. This will allow you to find the loan product that is the most cost-effective and that best meets your needs.
- Check your credit score: Before applying for a personal loan, it is a good idea to check your credit score and review your credit report. This will help you understand your creditworthiness and can give you an idea of what interest rates you may be able to qualify for.
- Gather the necessary documentation: Most lenders will require you to provide certain documentation when you apply for a personal loan, such as proof of income and identification. It is important to gather this documentation in advance, to make the application process go smoothly.
- Submit your application: Once you have gathered all of the necessary documentation, you can submit your loan application to the lender. This typically involves filling out an online application form or providing the information in person at a bank or other financial institution.
- Wait for the lender to review your application: After you have submitted your loan application, the lender will review your information and make a decision on whether to approve your loan. This process can take several days or even weeks, depending on the lender and the complexity of your application.
- Review and accept the loan terms: If your loan application is approved, the lender will provide you with the loan terms, including the interest rate, monthly payment, and loan duration. It is important to carefully review these terms before accepting the loan, to make sure that you understand the terms and that the loan is affordable for you.
What is an unsecured loan?
An unsecured loan is a type of loan that is not backed by collateral. This means that the borrower does not have to pledge any assets, such as a car or a house, in order to obtain the loan. Instead, the borrower's creditworthiness and ability to repay the loan are used as the primary factors in determining whether the loan will be approved.
Unsecured loans can be used for a variety of purposes, including consolidating credit card debt, paying for unexpected expenses, or funding a small business. They are often easier to obtain than secured loans, as they do not require the borrower to put up any collateral. However, because they are riskier for lenders, they typically have higher interest rates than secured loans.
What is an APR?
APR, or annual percentage rate, is the annualized cost of borrowing money, including certain fees and other costs associated with the loan. It is expressed as a percentage of the loan amount and is typically higher than the interest rate, as it takes into account additional costs such as points, origination fees, and private mortgage insurance.
The APR is designed to provide a more comprehensive and accurate picture of the total cost of borrowing money, as it includes all of the fees and other costs associated with the loan. It is important to compare the APR of different loan offers when shopping for a mortgage or other type of loan, as it can help you determine which loan will be the most cost-effective.