How to start your personal loan search
If you’re on the hunt for a personal loan, you may be wondering, what is a personal loan, exactly? A personal loan is money you borrow from a lending institution — be it a bank, credit union, or other third-party lender—which you will pay back over a fixed period of time. In today’s digital age, there are plenty of reputable online loans to choose from, which can be great when comparing personal loan rates.
There are several steps involved that you’ll want to consider when searching for personal loans online. Let’s go through each of them:
Step 1: Where to get a personal loan
First thing’s first. Where do you get a personal loan? As mentioned earlier in this article, you can obtain a personal loan from a bank, credit union, or online lending partner. A bank is the most traditional route, but credit unions are known for offering more flexible terms and rates.
You can also find personal loans online. It may require a bit more research to ensure they’re reputable and safe to use, but they can provide a convenient means to obtaining an online personal loan quickly.
Step 2: Get pre-qualified
If you want to get a quick idea of what kind of loans you qualify for — be it low interest personal loans, small personal loans, quick personal loans, and so on — get pre-qualified.
Many online lending partners can get you pre-qualification rates by conducting a soft credit check, which will not harm your credit score. Some information you may be asked for during this process includes the following:
- Personal information: such as your name and social security number
- Contact information: such as your phone number and email address
- Employment details: such as your employer’s name and your gross income
- Monthly obligations: such as any outstanding student loan debt, rent, etc.
Step 3: Start shopping
Once you have a general idea of what you qualify for and what kind of lending institution you feel comfortable borrowing from, the next step is to start shopping around for the best personal loan companies.
We recommend comparing rates from banks, credit unions, and online lenders to find the best personal loan rates. You’ll want to look at important information like APR, loan amounts, monthly payments, and fees.
Step 4: Always read the fine print
If an offer sounds too good to be true, it just may be. This is why it’s crucial to always read the fine print and conditions, and carefully review the loan agreement terms. While a lender may offer a great interest rate, they may be charging exorbitant fees, making it more expensive than another lender offering a higher interest rate.
Step 5: What happens after you apply
The entire application process, from approval to funding disbursement can take anywhere from 1 business day, to a week, or longer. Most lending partners will provide you with a timeline for how long it will take to get approved or denied, and how long it will then take to receive funds.
Recommended Personal Loan Lending Partners
Important terms to know:
Prepayment penalties: A fee for paying off the loan early. Some lending partners will charge you with a prepayment penalty fee simply for paying off the loan earlier than planned. After all, they’re missing out on the interest you would have been paying had you not paid the loan off early.
Origination fees: This is an upfront fee some lenders will charge that is essentially a cost for processing a new loan application. They are usually a percentage of the total loan.
APR: The Annual Percentage Rate (APR) is the total yearly interest rate. It factors everything in, including any fees, which is why it’s an important item you’ll want to look at when comparing lenders.
Late fees: This is a fee you’ll get hit with if you are late on a payment. The majority of lenders have some form of late fee, but some offer a nice grace-period before charging you. It’s important to know what kind of late fees you may be facing in the case that you’re ever late on your payments.
What do I need to get started?
Before diving into selecting a personal loan lending partner, it’s important to understand what you’ll need so you’re fully prepared. Let’s take a look:
Credit score
When applying for a personal loan, your credit score and credit history is everything. You will need to know where your credit score falls in the typical ranges (below), and generally what your credit report looks like. This, among a few other factors like debt-to-income ratio and income, will determine what kind of rates and terms you’ll be getting from lenders. The higher your credit score, the better the terms will be.
| Credit Score |
Rating |
| 720 and up |
Excellent credit score |
| 690 – 719 |
Good credit score |
| 630 – 689 |
Average credit score |
| 300 – 629 |
Poor credit score |
While you can request a free credit report from any of the three major credit bureaus—Equifax, Experian, and TransUnion—they do not include your actual credit score in the report. You can, however, purchase your credit score from them. You can also check a previous loan statement, credit card, or financial institution to get your credit score.
Loan amount and loan purpose
One of the first things a lender will ask for is how much money you need in total, and what it will be for. This will help narrow your search since many lenders have a personal loan minimum and maximum amount you can apply for.
The purpose of the loan can be refinancing, a major purchase, and so on.
Repayment terms
Personal loans come with a set period of time in which you pay off the loan. This can range from 12 months to 60 months or longer. While longer repayment periods can ease the burden and lower the cost of your monthly payments, keep in mind that paying back your loan over a longer period of time means paying more in interest in the long-run.
Documents and details
We already reviewed some basic information you’ll need to have for the pre-qualification process, but there’s more you’ll want to have ready on hand when you submit your full application with a lending partner or marketplace.
Here is a list of the documents or information you will likely have to submit:
- Bank account information
- Bank statements
- Employment and income information (such as W2s)
- Personal Identification
- Collateral (for secured personal loans)
Calculate how much you can afford each month
When taking out a personal loan, one of the first things you’ll want to know is how much you can afford for your monthly payments. Luckily, many lenders and websites offer a monthly payment calculator that will let you see how the different terms can affect your monthly payment.
Typically you will need to enter things like your loan amount, the loan terms, interest rate, credit score, and income to get an idea of what your monthly payments will be.
Good things to know
As you search for a personal loan, you’ll encounter plenty of financial terminology. Let’s cover a few of the most important terms so you feel comfortable moving forward:
- What makes a loan “secured” is when you back it up with some form of collateral, such as a home. This places less risk on the lending partner since if you default on your loan, they can claim the collateral.
- Unsecured personal loan: This type of personal loan is the most common and does not use any collateral. Since there is more risk to the lender, unsecured personal loans typically have higher interest rates than secured loans.
- Fixed rate: Most loans today are fixed rate, meaning the borrower can lock in their interest rate which will never change over the life of the loan.
- Variable rate: Unlike a fixed rate, a variable rate is an interest rate that can change depending on the market, making it harder to predict what your monthly payment will be.
- Cosigner: Adding a cosigner to your personal loan means having someone share the responsibility of the loan. If you do not qualify for a loan, having a cosigner with a better credit score or credit history can help get you approved or lock in a low interest personal loan.
- Marketplace lender: If you’re looking for quick personal loans, a marketplace lender offers a platform to compare multiple lenders within their network.
- Direct lender: This is a type of lender that provides personal loans directly to the borrower.
Comparing offers from multiple lending partners – which is right for you?
Now that you have a better understanding of the loan process and some common loan terms, you’re ready to determine if a lender is truly offering the best personal loans online.
When you’re comparing multiple loan offers from a variety of lenders, the first thing you’ll want to know is what your monthly payments will be. This is why it’s important to first figure out how much you can afford to pay each month. You can look at the terms and rates from the lenders you are comparing to see if you can afford the payments.
When you’re comparing lenders, you’ll want to pay attention to the APR. By law, all lenders must provide you with an APR, which will include any fees they have.
Keep in mind that rates and terms all depend on things like your credit score, credit history, debt-to-income ratio, and income. Some lenders are more favorable to those with great credit and will offer these individuals the best personal loan rates, while rejecting those with subpar credit scores. There are, however, plenty of lenders who cater to those with low credit scores and will offer reasonable rates. You just have to shop around.
Online-only lenders vs. traditional lenders
If this is your first time searching for a personal loan, you may only be familiar with loans directly from your brick-and-mortar bank or credit union. You might be less familiar with online-only lenders and what they can offer as well. We’ve compared them below.
Traditional lenders | Pros
- Safe and secure, less likely to be scams
- Larger banks often have brick and mortar where you can speak to someone in person
- You can qualify for a larger loan amount if you are already a customer
- Sometimes you can get a discounted interest rate with a bank if you are an existing customer with a good record.
Traditional lenders | Cons
- Stricter qualifications
- More limited when it comes to interest rates and terms
- The application, approval, and funding process can be slower than with online lenders
Online-only lenders | Pros
- Online lending partners often make the loan process quicker and easier
- Offer pre-qualification, which runs a soft credit check only
- You can quickly compare offers from various online lenders
- Less strict qualifications
- Easy personal loans to obtain compared to banks
- Offer small personal loans and large personal loans
Online-only lenders | Cons
- It’s recommended to check the credibility of the site and the level of security when sharing your personal information.
- If you are an existing customer of a bank or credit union, you might be able to get better terms.
- It’s harder to speak with someone in person. Communication is typically limited to online chat, phone, or email.
One of the biggest reasons why people defer from online lending services is the trust factor. With large banking companies or even local banks in your area, you can feel more assured since you can usually go into the physical branch and speak with someone. With online lenders, you should be extra diligent in your search and do proper research.
FAQs:
1. What can I use a personal loan for?
The beauty of a personal loan is that it can be used for virtually anything—medical expenses, a vacation, a major purchase, and so on. There typically aren’t any limits to what you can use it for.
2. Who qualifies for a personal loan?
It can be easier to qualify for a personal loan if it’s secured, but if you’re choosing an unsecured personal loan, lenders will determine your eligibility based on things like credit score, credit history, income, employment stability, and debt-to-income-ratio.
3. Will applying for a personal loan hurt my credit score?
When pre-qualifying for a personal loan, lenders conduct a soft credit check, which does not harm your score. Once you move forward with a specific lending partner, they will conduct a hard credit inquiry, which can affect your credit score.
4. What information will I need when I apply?
Lenders will ask for your bank information, contact information, bank statements, pay stubs, and a driver’s license when you apply.
5. How much am I able to borrow and for how long?
How much you can borrow and for how long depends on your financial profile as well as the lender. Some lenders will have a loan minimum and maximum when it comes to loan amount, and a repayment term range, such as 36-60 months.
Conclusion
When it comes to securing a personal loan with the best rates and terms, the more you know about the process and everything involved, the better. Hopefully this guide answered any questions you may have had about what a personal loan is and how to go about obtaining one. The next step is to find the perfect lender for your financial situation.
