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Is a Personal Loan Right for You?

personal loan

For student loan borrowers with high-interest debt, refinancing may be a good option to save money on interest. But if you’re also battling credit card debt, student loan interest rates might be the least of your problems. Credit card interest rates can vary widely, but they can easily be in the double digit —close to 20 percent.

If you are battling credit card debt, there is an alternative that can help save you money on interest and consolidate your loans: a personal loan.

What is a personal loan?

Personal loans, also known as unsecured loans, can help you fund a large expense or consolidate debt without requiring the use of collateral. This is different from a secured loan, where you might use your car or house as collateral for the loan. In the event of default, lenders can use collateral to recoup their money (for example, by repossessing a car or, in the case of a house, foreclosure).

Because personal loans are unsecured and don’t require collateral, they typically have higher interest rates than secured loans. However, personal loans offer much better interest rates than a credit card. Depending on your creditworthiness, you may be able to get an affordable interest rate.

When should you use a personal loan?

A personal loan can be used for a variety of things—unlike a student loan or a mortgage, a personal loan can be used for personal reasons at your discretion. Personal loans can offer access to capital, but they vary widely from something like a payday loan.

A payday loan is generally for short-term fixes. The money is available quickly, and the repayment terms have sky-high interest rates. By contrast, personal loans are generally used for long-term purchases, like debt consolidation or home repair, and they have much lower interest rates, making them an attractive option for those needing substantial capital.

But in the end, a personal loan is still a form of debt and should be used carefully. It shouldn’t be used to fund that dream vacation or a wedding (though research on the web will tell you otherwise). Saving up cash for those purchases is a much smarter option.

One of the best ways to use a personal loan is to consolidate high-interest credit card debt. Some credit cards have sky-high interest rates ranging from 10 to 20 percent or more.

Depending on your credit, you could get a personal loan for as low as 4.04%, pay off your credit cards, and have a new loan at a much lower interest rate. Considering that the average household has $7,281 in credit card debt, that could amount to a huge savings in interest.

Let’s say you have $10,000 in credit card debt at an 18% interest rate. If you consolidate with a personal loan of $10,000 at a 7% interest rate, over a repayment term of 24 months you could save $1,236 in interest.

Certified Financial Planner and financial coach Adam Hagerman says, “The majority of personal, unsecured loans I see are for debt consolidation. In my opinion, it’s one of the only reasons to consider a personal loan.”

While Hagerman believes a personal loan can be a good idea for debt consolidation, he also recommends looking at how you got into debt in the first place so you can treat the root cause of the problem. While it may seem like a personal loan is a great way to pay off credit card debt, you’re still taking on debt to pay off debt.

It’s crucial to understand why you got into debt. Was it a spending issue? A cash flow issue? Or an income issue? By tracking your income and expenses, you can identify the root cause so you extricate yourself from consumer debt.

Which banks offer personal loans?

If you’re thinking of taking out a personal loan to consolidate credit card debt, be sure to do your research on the terms of the loans as well as the interest rates. The interest rate you are offered will vary depending on your credit score and income. Obviously, you want to get a much better rate than your credit card in order to save on interest. Here a few companies that offer personal loans.

1. Upstart

Like Earnest, Upstart also has a flexible underwriting process that considers education, income and job history along with credit history. It can be a great choice for smaller loans, too. Borrowers can get loans as small as $1,000.

  • Loan amounts from $1,000 to $50,000
  • Minimum FICO score required: 640
  • Flexible underwriting and credit requirements
  • Fast application process

Visit Upstart

2. SoFi

SoFi, which began as a student loan refinancing company, has recently started offering personal loans as well, with some of the best rates in the industry.

  • No fees
  • Has repayment terms of 3, 5, or 7 years
  • You can borrow between $5,000 and $100,000
  • No minimum FICO score, but typically requires 680+
  • Offers unemployment protection so if you lose your job, you can postpone your payments.
Visit SoFi

3. Payoff

Payoff is a financial empowerment company designing products to help people make smart decisions about spending and saving. Their flagship product, the Payoff Loan™, empowers Payoff Members to pay off high-interest credit card balances at a lower rate and in a shorter term. They simplify the process so you get out of debt faster and save money.

  • Loan amounts: $5,000 and $35,000
  • Minimum FICO score required: 660
  • No application, prepayment, or late fees
  • Offers repayment terms of 2, 3, 4, or 5 years
  • The Member Experience Team answers questions and empowers Members toward financial success.
  • Starting an application won’t affect your credit score

Visit Payoff

4. Citizens Bank

Citizens bank is a trusted financial institution that offers and affordable personal loan. It has no loan fees. And Citizens Bank offers two different interest rate discounts that combined lower the personal loan rate by .50%.

  • Loan amounts from $5,000 – $50,000
  • Minimum FICO score required: 680
  • Trusted bank with a nearly 200 year history of servicing customers and communities
  • Fixed and variable rate options available
  • No origination, application or disbursement fees

Visit Citizens

5. LendingClub

  • Borrow from $1,000 – $40,000.
  • Rates from 5.99% to 35.89%* APR. Best APR is available to borrowers with excellent credit.
  • Flexible Loan Terms.
  • Fixed Rates and Payments – Your payment will not change for the life of your loan.
  • No Prepayment Penalties – Pay off your loan at any time without fees.
  • Simple and Secure – Check your rate without hurting your credit score.
  • Fast – Apply in minutes and receive your money in as few as 5 days.
  • No Hidden Fees
  • No Collateral Required
  • Good Credit Required
Visit LendingClub

6. Earnest

Earnest is an online lender that offers personal loans with a flexible underwriting process. In addition to having no minimum FICO score, they also consider factors like savings, income, and earnings potential to determine loan approvals and offers.

  • Loan amounts from $2,000 to $50,000
  • No minimum required FICO score
  • Response to loan application in about 2 days
  • No fees, hidden or otherwise
  • Interest rate discount with autopay

Visit Earnest

A personal loan can be a valuable tool for paying off high-interest debt, but make sure it’s beneficial for you and saves you money in the long run. If you are thinking of using a personal loan for anything else, consider budgeting and saving for it instead.

Interested in a personal loan?

Here are the top personal loan lenders of 2017!
LenderRates (APR)Loan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

2 Important Disclosures for Citizens Bank.

SoFi Disclosures

1

Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Finance Lender Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

Personal Loans: ​​*Fixed rates from 5.49% APR to 14.24% APR (with AutoPay). Variable rates from 4.99% APR to 11.10% APR (with AutoPay). SoFi rate ranges are current as of April 11, 2017 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 4.99% APR assumes current 1-month LIBOR rate of 0.99% plus 4.25% margin minus 0.25% autopay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.


Citizens Bank Disclosures

1

Personal Loan Rate Disclosure: Personal Loan Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of April 1, 2017, the one-month LIBOR rate is 0.98%. Variable interest rates range from 5.97% - 15.72% (5.97% - 15.72% APR) and will fluctuate over the term of your loan with changes in the LIBOR rate, and will vary based on applicable terms and presence of a co-applicant. Fixed interest rates range from 5.99% - 16.24% (5.99% - 16.24% APR) based on applicable terms and presence of a co-applicant. Lowest rates shown are for eligible applicants, require a 3-year repayment term(see examples), and include Loyalty1 and Automatic Payment2 discounts of 0.25 percentage points each, as outlined in the Loyalty Discount1 and Automatic Payment2 Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.

Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with Citizens Bank at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, Citizens Bank checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.

Automatic Payment Benefit: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.

5.67% - 29.99%$1,000 - $50,000Visit Upstart
4.99% - 14.24%1 $5,000 - $100,000Visit SoFi
8.00% - 25.00%$5,000 - $35,000Visit Payoff
5.97% - 16.24%2$5,000 - $50,000Visit Citizens
5.99% - 35.89%$5,000 - $50,000Visit LendingClub
5.25% - 12.00%$2,000 - $50,000Visit Earnest
Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print, understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.

Published in Debt, Personal Loans