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The Best Way to Shop for a Personal Loan

Tuesday, October 26th

The Best Way to Shop for a Personal Loan

Has the pandemic hit you hard financially? If you're like a lot of Americans, things are tight - even with stimulus payments and additional unemployment funds. Surprisingly, pre-pandemic times also witnessed a significant increase in the number of personal loans being given to everyday Americans: up to over 21 million loans nationwide, for a total over nearly $143 billion! Those numbers show no signs of slowing down as people borrow money to pay the rent, consolidate debt, or make a luxury purchase to ease some of the stress of quarantine restrictions.

For whatever reason you're seeking a personal loan, what's the best way to find one? Let's start at square one: checking your credit score. The higher your number, the more likely you are to qualify for the loan you want and at an interest rate you will like. Many lenders have minimum score requirements to apply, usually somewhere in the neighborhood of 650+. If you're not quite there yet, there's still hope - but you may pay higher fees and APRs, and your lender could require you to get a co-signer with a good credit score (to make it more likely that the loan will be repaid in full).

The next step is to start comparing rates online.

Wait, what? You mean I shouldn't just go to my local bank where I've been an account holder for years? That's correct: being a loyal customer may earn you some perks like a free keychain or a slight discount on the interest rate, but there's no guarantee that you'll get the best personal loan available to you. Shopping for a personal loan online lets you compare offers from multiple banks at the same time and will probably get you better terms than you'll find at your hometown financial institution.

Now that that's settled, choose a site where you can get some preliminary personal loan information by entering your credit score range, desired loan amount and repayment term (no identifying information required at this stage). You should get a list of "typical" loans available for consumers with your credit profile.

If the numbers look good, your next task is getting pre-qualified for a loan. You'll be asked for specifics like your Social Security number, monthly payments like rent or student loans, employment info (both income and employer name), contact information, date of birth, and so on. During this stage of the personal loan process, lenders might do a "soft pull" of your credit history - but it won't impact your score. On some personal loan websites, you can enter this information once to get pre-qualified with many different lenders; on others, be prepared to enter the same details more than once.

Pre-qualification done? Great! Time for comparing offers and selecting a lender. Some key factors to consider are interest rates, repayment terms (6 months? 3 years?), and the total amount you can borrow. Look for any fees you may be charged for taking out a loan; they may be called "origination" or "processing" fees. Lenders differ in the way they collect those fees: some tack it onto your loan amount (so that you're borrowing and paying interest on, say, $9200 instead of the $9000 you requested) while others deduct it from the loan proceeds (leaving you with $8800 instead of $9000 in our hypothetical example).

The last step is completing your application and getting final approval from the lender you've chosen for your personal loan. At this stage of the process, the lender will conduct a "hard" credit check that does impact your credit score; though the drop in points is brief, remember that having many such credit inquiries (like applying for a personal loan, auto loan, and mortgage refinancing in the same month) will have a longer effect.

Congratulations! Once your personal loan is approved, you should have your funds within a week - and some online lenders can even get the money deposited into your bank account in just 24 hours!

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Personal Loan FAQ

Any way you like! Personal loans typically don't come with restrictions on how they're used. Paying off high-interest credit cards, splurging on a luxury item you've always wanted, taking a much-needed family vacation: you can use your personal loan for all of that and more.
Most banks and credit unions offer personal loans, but your financial institution might not offer the most competitive rates. There are many lesser-known sources that want to earn your business with lower APRs and more personalized attention over the life of the loan.
That depends on a number of factors, such as your credit history and income. It's definitely worth shopping around, just like you would when buying a car or other big-ticket item. Consider using a service that allows you to get loan offers from multiple lenders with a single application: that will make it more likely that you'll get the best possible rate and terms on your personal loan.
When you're making an initial inquiry to see if you qualify for a personal loan, it usually involves a "soft pull" on your credit - verifying your identity, credit score, and current debts. That will not lower your credit score. However, if you take the next step and apply for a specific loan, expect that your credit score may dip a (but only temporarily).
Most lenders allow you to complete the process online, from beginning to end. That's a big perk for people who can't get to a brick-and-mortar bank during regular business hours.
Personal loans are available in amounts ranging from $100 to $100,000. Before you get too excited and start planning how you'll spend the money, keep in mind that the amount you'll actually be approved for depends on your financial situation. The higher your credit score and the lower your outstanding debts, the more likely it is that you will qualify for a bigger loan.
The application process can be extremely fast: some lenders can approve your loan in just a few minutes. Once you accept a personal loan offer, most providers will direct deposit the funds within 1-5 business days.
As with any kind of loan, it's important to keep track of the details: don't borrow more money than you can comfortably repay, make on-time payments every month, and communicate with your lender if unforeseen circumstances arise (e.g. unemployment, natural disaster, disability) and you need forbearance or other accommodations. It's also wise to check out the reputation of the lender: reviews from previous clients and a rating from the Better Business Bureau can be very informative as you decide which provider to use for your personal loan.

Compare Personal Loans

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