When you shop around for your first personal loan, it’s important to put in the same legwork you would with any major purchase. After all, you wouldn’t walk into a car dealership without knowing what kind of car you want, right?
That’s why you need to figure out how to get a personal loan that’s the perfect fit for you before signing on the dotted line. Make sure you ask yourself the following 10 questions to avoid any confusion or expensive mishaps along the way.
1. What do I need this personal loan for?
Perhaps you need a personal loan for consolidating debt, financing an emergency purchase, or funding much-needed home improvements.
Being clear on the purpose of your personal loan is the first step toward making key decisions, including how much you’ll borrow and whether you need a personal loan in the first place.
Lenders will ask you to state how you plan to use the funds on your personal loan application, and you’ll need to answer honestly.
Most of the time, your reason for getting a personal loan will have little or no impact on your application. However, some lenders do limit how borrowers can use loans. Payoff, for example, offers personal loans designed to help borrowers consolidate and pay off credit card debt.
2. How much do I need to borrow?
Add up all the costs you would like to cover with your personal loan and limit your loan balance to that amount.
There’s no need to tack on an extra $5,000 simply because you like the idea of having more cash on hand. It’ll make your loan more costly and increase your chances of delinquency or default.
Knowing how much money you need also will help you choose a lender, as most lenders have a set minimum and maximum for personal loans.
3. How much can I afford?
As you figure out how much to borrow, you also should think about how big of a loan you can afford to repay.
Remember: The bigger your personal loan, the higher your monthly installment payments will be. You’ll also pay more in interest and origination fees.
Here’s how to get a personal loan you can afford:
- Review your budget and monthly cash flow.
- Figure out if you usually have money left over after you cover your bills each month.
- Identify how much you can devote to covering payments on a new debt.
- Look for areas where you could lower your costs and make more room in your budget before seeking a personal loan.
- Weigh your need for a personal loan against other financial goals.
- Weigh other expenses or goals against your need for a personal loan to decide which choice matches your priorities.
4. How long will I be repaying this personal loan?
Your personal loan repayment term is the number of months or years over which you’ll repay the debt. Repayment terms typically range from one year to 10 years or more.
If your primary concern is keeping total costs low, then you should get a personal loan with a shorter term. When you choose loans with shorter terms, you pay less interest and get out of debt faster. Plus, most lenders charge lower interest rates on shorter personal loan terms.
However, you also want to be sure your monthly costs are affordable. The length of your loan directly affects how high your monthly payments are. You’ll want to choose a term that results in affordable payments, based on the amount you plan to borrow.
For example, let’s say you’re borrowing $10,000 at 8.00% interest and repaying it over five years. You’ll end up with an affordable monthly payment of $203.
But if you repay that $10,000 over three years with a 6.00% interest rate, your payments will be $304 a month. That monthly payment could be less manageable, but the combination of a lower rate and shorter loan term will save you $1,214 in total interest costs.
You can use our calculator below to estimate your monthly loan payments.
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5. What’s my credit like?
Before you apply for a personal loan, find out what your credit score is. This information will help you get a personal loan with the best interest rate and choose a lender with credit requirements that match your credit history.
Here’s what you need to keep in mind when it comes to credit scores and personal loans:
- Credit scores under 580 are unlikely to qualify you for a personal loan. You might need to look into other options, such as applying for a secured loan or adding a co-signer.
- Credit scores of 580 to 680 are considered fair or average. If you’re in this range, choose a lender with care. Consider applying for personal loans for fair credit to increase your chances of approval.
- Credit scores of 680 or higher will give you the best chances of personal loan approval. In this range, your good or excellent credit also will earn you lower interest rates and origination fees.
Always check credit requirements from lenders to ensure you qualify.
6. Will I need a co-signer?
A key consideration is whether you need to apply for a personal loan with a co-applicant.
A co-applicant, such as a co-borrower or co-signer, is a second person who applies for a loan with you. What’s more, your co-applicant agrees to be responsible for repayment if you’re unable to make payments.
Many borrowers apply for a personal loan with a co-signer to improve their chances of approval. That’s because you can use the good credit history of your co-signer to be considered for approval and secure better interest rates and terms.
7. What type of personal loan is best for me?
The most common type of personal loan is an unsecured loan. An unsecured loan is borrowed in a lump sum, without collateral, and paid off in installments over a period of several months or years.
But here are some other personal loan options you should consider:
- Secured personal loans are backed by collateral you provide, such as a savings account or auto equity.
- Fixed-rate loans charge the same interest rate throughout the life of the loan.
- Variable-rate loans often have lower starting rates but give the lender the option to bump them up later.
- Peer-to-peer personal loans, such as those offered through LendingClub, are funded by individual investors and sometimes have flexible eligibility requirements or lower interest rates.
Each type of personal loan has benefits and drawbacks. And not every lender offers every kind of loan. Consider all available options before choosing one that’s the best fit for your finances.
8. What personal loan rates do I qualify for?
When you shop for a personal loan, comparing interest rates will help you find the lowest-cost option.
If you have a high credit score and other good qualifications (such as a high income and low debt level) you’re likely to get the best personal loan rates. For instance, SoFi offers personal loan rates starting at 6.26%.
Even if you have less than perfect credit, it pays to shop around for personal loan rates. You can get preapprovals (often called rate estimates) from a few lenders and compare them.
9. Will I pay origination or other personal loan fees?
Alongside interest rates, you also should compare fees to identify the best deal.
Take origination fees, for example. An origination fee is usually 1 to 6 percent of the loan’s balance. It’s possible a loan with a low rate might not be the best deal if it also carries a high origination fee.
Plus, a lender will take out the amount of the origination fee from the loan balance before disbursing funds. So make sure you’re accounting for this fee and requesting a high enough balance to cover the additional cost.
10. Is this lender trustworthy?
Make sure you choose a lender that will deliver a good experience. Check reviews of the lender from real customers. These reviews will alert you to potential red flags and unexpected costs and give you a glimpse into how responsive the lender’s customer support team is.
Additionally, many reviewers include their credit info and whether they got approved, giving you a good idea of what kind of borrowers these lenders work with.
Throughout the process of shopping for a personal loan, watch out for the following warning signs of predatory lenders:
- No-credit-check loans
- Unclear fees and hidden costs
- High-pressure sign-up processes
It’s easy to get so caught up in how to get a personal loan that you lose sight of what it will be like to repay it. That’s why it’s important to take your time to research and compare your options and choose a personal loan you feel confident about. It’s worth it to find the best deal on a personal loan — you could be dealing with it for years to come.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
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 6.16% to 35.89%. 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 time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. 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 or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|6.26% – 14.87%1||$5,000 - $100,000||Visit SoFi|
|6.99% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|5.99% – 24.99%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|6.99% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|