While the best place to apply for a personal loan may be your bank or credit union, you can also consider an online loan or a 0% APR credit card. While each option comes with plenty of advantages, the best option for you may depend on your credit score and your unique loan needs.
Determine Your Credit Worthiness
As you prepare for a personal loan, the best first step is finding out your credit score. This three-digit number is a numeric manifestation of your credit health, and it plays a huge role in the type – and quality – of loan you can qualify for.
Getting a free copy of your credit score will help you determine your next best steps. From there, you can start shopping for loans among varying banks and financial institutions.
If you have excellent credit (a FICO score of at least 720), your best option is almost always a 0% APR credit card. With these cards, you will pay 0% on purchases for anywhere from 12 – 21 months.
The biggest benefit is that you can avoid paying interest on your purchases during the card's 0% introductory offer period. Not only that, but you don't have to visit a bank or gather excessive paperwork, either. Most of the time, you can apply for a 0% APR credit card online. And if you pay off your loan before the 0% APR offer ends, borrowing the money could be 100% free.
If you have good credit (A FICO score between 690 and 719) and can't qualify for a 0% APR credit card, you should be able to qualify for a personal loan from an online bank or traditional lender. The better your credit score and the higher your income, the more money you can borrow and the better loan rates you'll receive.
If you have average credit (FICO scores between 630 and 689), you will likely need to apply for a personal loan with an online bank or traditional lender. Depending on your income and payment history, you could still qualify for a quality loan with low rates and fair terms.
With bad credit (a FICO score between 300 and 629), it's unlikely you'll qualify for an unsecured loan without a co-signer. You may need to take out a secured loan with collateral, such as your car or any land you own. You can also consider finding a family member to guarantee the loan.
Where to Find a Personal Loan
As we mentioned already, the best places to find a personal loan are typically traditional banks, credit unions, online lenders, and 0% APR credit cards. With any of these options, you'll get a fair loan with a monthly payment you can afford.
If you have a long-standing relationship with a bank or credit union, they are often your best bet outside of 0% APR cards. Depending on your standing and the length of your relationship, you may even qualify for special loan offers with exceptional terms.
It's also important to remember that applying for an online loan is easier than one might think. If you don't like your bank's offer or you don't have a bank near your home, you can gauge your loan options by filling out a simple loan application online.
With many online banks, you'll get an answer within minutes. But, the best part about applying for an online loan is that you may not need to submit a full application to see preliminary loan offers you can use to compare. That's because, many times, online banks only need to conduct a "soft pull" on your credit to see if you qualify.
Another option to consider is a peer-to-peer lender. Lending Club and Prosper are two alternative banks that lend money to average borrowers. With both Lending Club and Prosper, you can negotiate a short-term or long-term loan with interest rates and terms that depend on your credit worthiness. The difference here is that your loan will be funded by individual investors instead or a corporate bank.
How to Find the Best Personal Loan
No matter where you choose to apply for a personal loan, the process to find the best option is the same. Compare the following criteria between each loan offer you receive to find the best deal:
- Interest rate or APR – Compare interest rates to find the loan with the lowest ongoing interest charges.
- Loan fees – Compare loan fees across all loan offers you consider. Obviously, the best loan offer will come with no fees or very little out-of-pocket cost.
- Loan length – Find out how long you'll need to make monthly payments until your loan is paid off.
- Monthly payment – Use a loan calculator to figure out your monthly payment. Make sure to choose a loan with a monthly payment you can afford.
The best personal loan for your needs will come with the best combination of the details above. Ideally, you'll score a personal loan with a competitive interest rate, no fees to get started, and a monthly payment that works with your budget. Make sure to compare each loan in its entirety to find the best loan package over all.
Personal Loans to Watch Out For
In addition to loans from online lenders and traditional banks or credit unions, you'll find an array of lending options that are far less fair. For example, it's possible to take out a payday loan that relies on your future paycheck for repayment. The problem here is that many payday loans charge interest rates upwards of 300%!
The same can be true for high-interest installment loans and even title loans, which use the title of your car for collateral. Make sure you compare the interest rates and fees for these loans before you apply. No matter how bad you need the money, the last thing you want is a loan with an excessively high interest rate.
Perhaps you're ready to remodel your home but don't have the cash, or maybe you want to consolidate your debts. Whatever the reason, a personal loan might be the answer you're looking for – that is, if you get a fair deal.
As you explore loan options, make sure to read through all the fine print and know your total loan costs ahead of time. The right loan can help you manage any number of financial issues, but the wrong loan can actually leave you worse off than when you started.