What is a personal loan?
A personal loan is a money borrowed from a bank or an alternative lender, typically $2,000 to $100,000 with set interest rates and repayment terms.
What can I use a personal loan for?
Personal loans can be used for virtually anything, such as:
- Large purchase like a car
- Home renovation like a kitchen remodel or finishing your basement, to pay for college,
- Consolidate credit card debt or to
- Cover an unexpected expense like a new furnace
- Pay for a car repair or a broken appliance
What do I need to get a personal loan?
Wether you’re applying in person at your local bank on online, you’ll need to provide personal information as well as your financial details to the lender. Here are 3 steps to help you get a personal loan.
- Know your credit. The first step in getting a loan is to know your credit score and what you’re likely to get approved for. A general rule of thumb is that a credit score of 650 or more will qualify you for a personal loan. Know your score before you apply. You can get a free credit report from Nerdwallet or annualcreditreport.com.
- Use calculators or prequalify. Before you apply and have a lender run a hard credit check on your account, use a free online calculator or a pre-qualification application to see how much you’re likely to be approved for and your monthly payment. A prequal app may do a soft credit check but that won’t hurt your credit score and if you don’t like the results you don’t have to move forward.
- Apply online. Once you know your credit score and have an idea of the size of loan you’ll likely be approved for, it’s time to apply for a personal loan. Start with your local bank if you have excellent credit. If your credit score is below 700, look at online lenders like SoFi and Bestegg.
How to apply for a personal loan
When applying for a personal loan you’ll need to provide your personal information and financial statements in order for the lender to assess your creditworthiness. Often this will be:
- Name, address and date of birth
- Current pay stub
- Letter of employment and
- 3 months of bank statements
Once your applications has been reviewed, they will provide you with a loan amount, the interest rate you will be charged, the repayment terms and your monthly payment. The higher your credit score the higher the loan amount you’ll be offered and the lower the interest rate you will be charged.
What credit score do I need to get approved for a loan?
Your credit score is one factor that lenders consider when approving a personal loan. They will also look at your income and debt-to-income ratio, all of which can affect your approval.
Credit scores range from 300-900 and the higher your credit score the more likely your chance of approval. Typically to be approved by most lenders you will need a credit score of 680 or higher.
If your credit score is below 600, you may be more likely to be approved for a short-term installment loan, payday loan or small cash advance from an app like Money Lion. Be careful of the interest rates as they can be very high.
Dive deeper >> Payday loan statistics
What is the average interest rate on a personal loan?
Personal loan interest rates range from 8% to 36% and generally depend on your financial profile. In order to be approved for a loan at 8% you would need to have excellent credit (750+), a steady income and strong credit history.
Loans at rates above 18% are available to people with lower credit scores, but they will also incur higher interest payments. It is important to compare the interest rates of different loans before you apply as interest rates can vary significantly from lender to lender.
if you have bad credit you can read more about options for payday loans with easy approval here.
What is the principal amount of a personal loan?
The principal amount of a personal loan is the amount you borrow in total. This amount can be anything from $2,000 to $100,000 and will depend on your financial needs and credit score. The longer the term of the loan, the more you will pay in interest. Loan terms range from 6 – 96 months.
We always recommend you know your credit score and compare personal loans from multiple lenders before applying.
How long will it take to receive my personal loan?
The length of time it takes to receive a personal loan generally depends on the lender’s lending criteria. Generally, loans are approved within minutes and can be funded within hours.
How do I pay back my loan?
Typically, you will have to make monthly loan payments. The amount of the payment and the frequency of the payments will depend on your loan agreement. Most personal loans come with flexible terms that allow you to make lump sum or periodic payments on top of your scheduled payment. If you’re looking to pay off your loan ahead of schedule, consider a lender that doesn’t charge a fee for early repayment.
How to chose a personal loan that’s right for you
The first place to start is to compare the annual percentage rate (APR) across lenders. You’ll want to find the lowest rate you can get. The APR is the cost of the loan as a percentage including interest and fees.
APRs range from 8-36% so shop around before you apply. Other factors to consider:
- Loan amount. Make sure the lender you chose offers loans in the amount you need. You don’t want to have to get multiple loans because you chose a lender strictly for their APR.
- Fees. You’ll want to read the all the fees a lender will change. Loan origination fees are common and sometimes deducted from the loan amount you’re approved for
- Repayment terms. Choosing a lender that has flexible repayment terms is important. You want to make sure your monthly payment is affordable and if there is an early repayment fee.
- Funding time. If you’re looking for funds to be deposited into your account quickly, chose a lender with fast funding. There are many out there that offer funds in the same day or 24 hours.
All lender reviews
| Best Egg | They cater to people with fair to excellent credit and offer loans between $2,000 and $50,000. | Read full review |
| Opploans | You can borrow $500 – $4000 and the interest rates range from 59-160%. | Read full review |
| LendingPoint | Loans for people with less than average credit looking to borrow up to $36,500. | Read full review |
| SoFi | Great lender for people with good credit and a high income looking for loans up to $100,000. | Read full review |
| 5k Funds | Loan marketing place that matches borrowers with bad credit with lenders who will approve them. | Read full review |
| Upgrade | Upgrade caters to borrowers with less than excellent credit looking to apply for an online loan up to $50,000. | Read full review |
| Reprise Financial | This lender offers loans for people who have limited options because of their low credit scores. Apply for up to $25,000. | Read full review |
| Transform Credit | Quick funding on loans up to $7,000 — but you will need to find a co-signer with excellent credit to get approved. | Read full review |
| eLoanWarehouse | Online tribal lender offering installment loans for people with less than excellent and bad credit. | Read full review |
| Lendumo | Tribal lender that provides short-term installment loans for small amounts with big fees. | Read full review |
| Fineday Funds | Short term loans up to $2,500 for borrowers who have been denied for a loan because of credit score and history. | Read full review |
