How to Help Your Side Hustle Succeed With a Low-Interest Personal Loan

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What would you do with extra money each month? Pay down your debt? Plan a vacation? Joining the more than 44 million Americans who have side hustles could provide you with a way to reach your financial goals. But how do you get started?

“Some side hustles require an upfront investment,” said Gerri Detweiler, education director at business credit and financing company Nav. “While it’s ideal to start a business debt-free, that’s not always realistic.”

Detweiler said applying for low-interest personal loans could be one way to get your business funding off the ground.

What are personal loans?

Personal loans are unsecured, meaning you don’t need collateral to qualify. They come in different forms. You can get low-interest personal loans from:

  • Banks or credit unions
  • Peer-to-peer lenders
  • Fintech companies that specialize in personal loans

When you get creative, you might be surprised at the options you have for getting a personal loan for your business startup.

The interest rate on a personal loan to start a business can vary depending on the company and your credit. WenFang Bruchett, who teaches entrepreneurs how to fund their startups at BlissFinance, pointed out that you have to be careful about where you get your personal loan funding. Fast finance companies that make it easy to get a loan might charge higher interest rates.

“It’s easy to get that kind of loan, and you don’t need to have great credit,” said Bruchett. “But the interest rate is very expensive, often in the double digits.”

When you’re starting a business, it’s better to qualify for a small low-interest personal loan, said Detweiler. Payments are more manageable, and as the business grows, it’s easier to pay off a loan with a lower interest rate.

Advantages of low-interest personal loans

“Personal loans are a lot easier to get than small-business loans, which can be hard to get as a startup,” said Detweiler.

Not only is it possible to get the funding you need faster, but you also can rely on your personal credit score. If you have good credit, you should be able to get a decent interest rate.

Lou Haverty has been involved in buying and selling websites as a side hustle and is the founder of financial education website Financial Analyst Insider. He likes using peer-to-peer sites, such as LendingClub, to fund business ideas.

Haverty pointed out that you don’t need collateral for personal loans, so you aren’t putting a valuable asset, such as your home or savings account, at risk.

“You also get access to small loans at a relatively competitive interest rate, especially compared to credit cards,” Haverty said.

On top of that, a personal loan for a business startup is less likely to have a big, damaging impact on your credit score, provided you use it carefully.

“High balances on personal credit cards can result in high credit utilization, which can lower your scores,” said Detweiler. “That’s usually not an issue with personal loans, which are installment loans, because usage isn’t a factor the way it is with credit cards.”

Disadvantages of using personal loans to fund a side hustle

Detweiler said using personal loans to fund your side hustle can be a double-edged sword. Even though you can use your personal credit to get faster funding and a good rate, you’re also putting your rating at risk.

While you don’t need to worry much about your credit utilization ratio, you do need to make sure you pay on time. Missed payments on your personal loans can be a huge drag on your credit score.

“Another downside is that if your business fails, your loan payments may be a painful and expensive reminder,” said Detweiler. “Keep borrowing to a minimum if possible — at least until you have [proved] your business concept.”

If you don’t have good credit, using a personal loan to fund your side hustle might not make a lot of sense. There are personal business loans for bad credit, but they might not be beneficial. Without the low rate that comes with excellent credit, you could be stuck paying high interest, said Bruchett, and your payments could become unaffordable.

Use collateral without putting your house at risk

If you can’t get the best rates on personal loans, Bruchett suggested looking at ways to get funding using collateral. You don’t have to turn to a home equity loan, though.

Some banks and credit unions will provide you with low-interest funding if you have a savings account or certificate of deposit (CD). “Pledge the funds as collateral, and the entire process can take less than an hour,” said Bruchett. “The interest rate can be as low as 2.00% above your CD or savings rate.”

Bruchett also pointed out that some lenders will let you use your brokerage account as collateral. “You can continue to trade and make money without depleting your portfolio,” she said.

However, the major downside to using collateral is that you could lose it if something goes wrong and you can’t make payments on your loan. As a result, said Haverty, it’s preferable to use unsecured personal loans to fund your side hustle whenever it’s practical.

How to get a personal loan for your side hustle

If you decide low-interest personal loans are a good fit for you, here’s how to get started:

  1. Know your credit. The first step is to check your credit score. You can use a consumer credit site to see where you stand or look at your most recent credit card statement. Don’t forget to go to AnnualCreditReport.com and look through your credit report for errors. If you find mistakes, contact the credit reporting agency and creditor to have them fixed. You don’t want to be denied a low-cost loan because of an inaccuracy in your history.
  2. Compare personal loan options. Look at personal loan terms from different lenders. Consider interest rates and repayment options to find a loan that works best for your situation.
  3. Prepare your documentation. Most lenders require the same information. That means you’ll need your Social Security number, personal details (name, address, birthdate), driver’s license number, and proof of income (usually pay stubs or tax returns).
  4. Fill out the personal loan application. Technology makes it easy to fill out applications online. You usually can upload PDFs of your income documentation and scanned images of your driver’s license. You might not even need to go anywhere to sign the paperwork. As long as the lender has your banking information, it can deposit the money into your account — sometimes in a few business days.

After you have your loan

Once you have your personal loan, it’s important that you pay on time and work hard to make your business profitable as quickly as possible.

“After you’ve established your business, you can then apply for a business credit card or business loan,” said Detweiler. “These won’t affect your personal credit scores.”

In the end, low-interest personal loans are great for helping you get started, but the long-term goal is to build a business or side hustle that stands on its own two feet.

Interested in a personal loan?

Here are the top personal loan lenders of 2018!
LenderRates (APR)Loan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Personal LoansFixed rates from 6.58% APR to 14.87% APR (with AutoPay). Variable rates from 6.275% APR to 12.575% APR (with AutoPay). SoFi rate ranges are current as of July 16, 2018 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. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 6.275% APR assumes current 1-month LIBOR rate of 2.10% plus 4.175% 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.
  2. 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 Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  • Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment 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.
  1. 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 us 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, our 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.
  2. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan 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. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.

* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

  • Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment 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.
  1. 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 us 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, our 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.
  2. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan 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. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7.73% – 29.99%$1,000 - $50,000
Check rate nowon SLH's secure site
6.28% – 14.87%1$5,000 - $100,000
Check rate nowon SLH's secure site
6.87% – 35.97%*$1,000 - $50,000Visit Upgrade
8.00% – 25.00%$5,000 - $35,000
Check rate nowon SLH's secure site
4.99% – 29.99%$10,000 - $35,000Visit FreedomPlus
5.99% – 18.99%2$5,000 - $50,000Visit Citizens
15.49% – 34.49%$2,000 - $25,000Visit LendingPoint
5.99% – 35.89%$1,000 - $40,000Visit LendingClub
5.49% – 18.24%$5,000 - $75,000Visit Earnest
9.95% – 35.99%$2,000 - $35,000Visit Avant
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.