The Best Way to Shop for a Personal Loan

Monday, January 13th

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!